Dividend taxation could lead to greater share buybacks by companies

A topic that frequently appears in the market, closely monitored by managers, is in relation to a possible taxation of dividends paid by companies, which today are exempt from IR (Income Tax).

Last week, President Jair Bolsonaro (PL), campaigning for re-election, and the Minister of Economy, Paulo Guedes, once again proposed taxation as a way to fund an Auxílio Brasil of R$ 600 next year.

In the assessment of market specialists, it is necessary to wait to understand what would be the possible forms of taxation, with possible counterweights to offset the measure, such as a reduction in the tax paid by companies.

In any case, managers recognize that, with the approval of taxation on dividends, changes must occur in the segment of shares on the Stock Exchange known for the practice of distributing part of the profits to shareholders.

Rodrigo Santoro, of Bram, predicts that a taxation of dividends would tend to be reflected in a change in the strategies of the companies of remuneration to the shareholders.

Instead of paying dividends to investors, an option that would likely be more valued by companies would be to promote share buyback programs in the market, says the manager.

In this way, he explains, the tendency is for the purchase movement carried out by the companies to generate an increase in the price of shares on the Stock Exchange, with the return to shareholders starting to occur through an induced appreciation of the shares, says Santoro.

“As soon as dividends are taxed, companies will look for other ways to allocate capital and return results to their shareholders”, says the manager at Bram.

Rafael Cota Maciel, from Inter Asset, adds that, if there is indeed a measure that starts to tax dividends, the tendency is for companies to review plans and interrupt, or at least reduce the distribution of dividends, to the detriment of the search for new business expansion fronts to grow the operation.

“Companies will do the math to understand whether it makes more sense to reinvest in the business or distribute dividends, even if they are taxed”, says the Inter Asset manager, adding that the change in companies’ remuneration policy tends to cause changes in portfolio compositions. of market dividend funds.

According to Marcio Luis Pereira, responsible for the stock research area at Icatu Vanguarda, even if the dividend taxation measure is approved, the expectation is that it will be accompanied by some reduction in the IR (Income Tax) table ), in order to offset the tax collection.

“Otherwise, the exclusive taxation of dividends would not be beneficial to the Brazilian business situation, with a disincentive to investments in the capital market and in the companies themselves by their controllers”, says Pereira.

According to the specialist from Icatu Vanguarda, considering figures that circulated in the market when the discussion about the taxation of dividends gained strength, an incidence of taxes between 10% and 20%, with a reduction of the IR of around 15%, could even be beneficial the companies. “If on the one hand the dividend would be taxed, the tax reduction would allow companies to present more robust profits, offsetting the negative effect”, says Pereira.

10% to 20% tax rate signaled by the government in discussions on dividend taxation

15% IRPJ reduction expected by the market to offset dividend taxation