Alesp approves law that reduces inheritance tax and takes R$ 4 billion from public coffers

Last Wednesday night (21), Alesp (São Paulo Legislative Assembly) approved a reduction in the tax on inheritances and donations (ITCMD). The rate will change from 4% to 1% for inheritances and 0.5% for donations.

Bill 511/2020 is authored by Deputy Frederico d’Avila (PSL-SP). On Twitter, the parliamentarian celebrated the approval and said that “the exacerbation of the ITCMD tax burden on the transmission of assets, whether inter vivo or causa mortis, especially after the pandemic, is unjustifiable.”

Calculations by the Department of Finance and Planning of the state of São Paulo, however, indicate that the measure should take R$ 4 billion a year from the São Paulo public coffers.

“The approval of this nonsense by the assembly can only have one destination: the veto”, he told the Sheet the Secretary of Finance and Planning of the state of São Paulo, Felipe Salto. According to him, the portfolio already has the necessary subsidies to be able to veto the law, approved after Alesp itself gave the endorsement for the 2023 budget, which does not consider this loss in revenue.

“There is no fiscal space or economic logic for a messed up measure like this”, he says. “At the end of the year, it is common for tax bombs to be set up. But for that to happen, the obvious must be shown: the measure is unconstitutional and the cost is an impediment.”

Brazil has one of the lowest inheritance rates in the world

According to information from the São Paulo section of the CNB (Colégio Notarial do Brasil), which brings together notary offices in the country, the ITCMD is a state tax, that is, each state defines the criteria and rates for its regions. The rate cannot exceed 8%, as defined by the Federal Senate.

“Inheritance tax is levied on any property or property right transmitted to the heir due to death. It may be securities, representative rights or company capital, such as shares, corporate rights, dividends and credit. As well as, assets movable and immovable, and cash in real or foreign currency”, informs the CNB.

The new law approved in São Paulo goes against the grain of several worldwide initiatives to increase taxation on fortunes and inheritances. According to the Tax Foundation –an American non-governmental organization dedicated to education about tax policy and regulations–, the highest inheritance rate in the world, at 55%, is in Japan, followed by South Korea (50%) and France (45%).

Even Latin American neighbors have higher rates than Brazil, such as Chile (25%) and Peru (10%). “Although Brazil has a high tax burden, this tax here has one of the lowest rates compared to other countries”, says the CNB.

As a justification for the bill, Frederico d’Avila states that “legislative action is necessary in order to alleviate the tax burden at this time of economic crisis due to the pandemic.”

According to the bill’s text, “several studies point out that lower taxes attract more investors, increase revenue, accelerate productivity, exports and increase consumption” and that “taxes that fall on income are a major disincentive for productive investments, training of capital and the simple well-being of people.”