Income tax lag makes those who earn less pay almost 2,000% more

The lack of correction of the Income Tax (IR) table combined with the increase in inflation in Brazil has generated a historical increase in taxation on the population with less purchasing power.

This is the conclusion drawn from a study carried out by Sindifisco Nacional, which represents the tax auditors of the Federal Revenue Service.

According to a simulation made by the entity, a person who receives BRL 5,000, after deductions, currently pays BRL 505.64 in IR. If the entire table lag were corrected, this value would drop to BRL 24.73 — a difference of almost 2,000%.

In the event of a readjustment, only people earning more than R$4,670.23 would be required to pay IR. This means that another 12.75 million Brazilians would be exempt from the payment, reaching 23.84 million in total. Today, the exemption is given to workers who earn up to R$ 1,903.98.

At the top of the pyramid, among taxpayers who earn R$100,000 per month, the percentage difference between correcting or not correcting the table would be much smaller, around 5%. The decrease in the tax paid would be from the current BRL 26,630.64 to BRL 25,352.85, according to the Sindifisco simulation.

“Not correcting the table is a way to increase the tax for this large portion of the population that, in addition to paying the IR, also needs to deal with indirect taxes, which are levied on consumption”, said president of Sindifisco Nacional, Isac Falcão .

Mauro Rochlin, economist and professor at FGV (Fundação Getulio Vargas), points out that, as the income tax is not readjusted, inflation ends up burdening people with lower incomes more because they are the ones who save the least and are least able to afford defend against rising prices.

“This person’s income is practically all geared towards consumption and, insofar as the income is not keeping up with inflation, they are relatively more penalized than those with higher incomes, who can use the rest of their income to make financial investments and escape the high prices”, he says.

In the 12-month period up to June, the IPCA (Broad Consumer Price Index) reached 11.89%. In the month, inflation rose 0.67% with high food away from home and health insurance, according to the IBGE (Brazilian Institute of Geography and Statistics).

The inflation of each period makes a big difference in the lag calculation. Among experts, freezing the table is seen as a political strategy.

“The non-correction of the progressive table of the IR is a way to increase the collection without the Executive Power having a political cost associated with the rate increase, for example”, said the vice president of Sindifisco Nacional, Tiago Barbosa.

“All you have to do is let inflation act without affecting the ranges that the monetary correction of the income earned by taxpayers causes an increase in the tax paid. In other words, it is a hidden tax that the government does not want to give up,” he added.

The survey carried out by the Revenue auditors shows that the lag in the IR table reached 147.37%, considering the period from 1996 – the year in which annual readjustments ceased – to June of this year. Before, in the years of uncontrolled inflation, the table was automatically readjusted by an index, the Ufir (Reference Fiscal Unit).

It was in the second year of the Fernando Henrique Cardoso (PSDB) government that the annual update was stopped. From the Tucana administration, the correction started to be made inconstantly, as in 2002 and, in the PT governments, between 2005 and 2015 — the last year in which there was readjustment.

During the government of Jair Bolsonaro (PL), the gap has accumulated at 26.6% until June, according to data from Sindifisco. The value is above any other president since the implementation of the Real Plan. According to the entity, no other head of the Executive carried out the full correction of the IR table.

The IR collection table has been the same for seven years, when the minimum wage was R$788. Brazilians who receive R$ 1,941 (1.5 minimum wage) will have to pay IR starting next year, if the table is not corrected.

The lag also causes many taxpayers to change their income bracket after salary readjustments, albeit below inflation, and start paying a higher rate compared to the previous year.

“The tax becomes more regressive, because the person changes salary range without having had a real income gain. As a result, he is being more burdened by the tax. This is yet another reason why the non-correction of the Tax income tax penalizes people with lower incomes,” said Rochlin.

Promoting the correction of the IR table was a commitment made by Bolsonaro during the 2018 election campaign, which has not yet been implemented.

The IR Reform bill, PL 2,337 of 2021, defended by Minister Paulo Guedes (Economy), provided for the correction of the table, but the proposal had controversial items, such as the taxation of profits and dividends. The text is stalled in Congress. This year, the government sees no more space to implement the measure, saying there are obstacles in the electoral law.