Income of Brazilians with profits and dividends grows in the pandemic and reaches R$ 384 billion

The income declared by Brazilians with profits and dividends rose to R$ 384.3 billion in 2020, the year in which the emergence of the Covid-19 pandemic destroyed millions of jobs and led companies to cut workers’ salaries.

The value is 7% higher than that declared in this source of income in 2019. The variation exceeds the inflation of the period — the IPCA (National Broad Consumer Price Index) ended 2020 up 4.52%.

In addition, of every BRL 100 declared as profits and dividends, BRL 70 was in the hands of the richest 1% — a select group of 316,348 declarants who had income between BRL 603,100 and BRL 2.6 billion in the year 2020.

The data are part of the large numbers of IRPF (Individual Income Tax) statements for 2021, based on 2020 income. The information is published annually by the Federal Revenue Service.

For experts, the growth in profits and dividends signals, on the one hand, the resilience of this source of income even in a period of crisis. On the other hand, it indicates the possibility that there was a concentration of income in the country, deepening inequalities.

Profits and dividends received by individuals are exempt from Income Tax in Brazil. Among its recipients are investors, shareholders, business partners, self-employed professionals and other business service providers (legal entities). In general, the payment of this amount is intended for people located in the wealthiest strata of the population.

On the other hand, income from work (received by a professional with a formal contract, for example) is discounted from the IR, with progressive rates ranging from 7.5% to 27.5%.

In contrast, the taxable income category (which includes wages) grew by 3.2% in 2020 from a year earlier — below inflation.

The team of Minister Paulo Guedes (Economy) even proposed to Congress an income tax reform that provided for the resumption of taxation of profits and dividends on individuals — a charge that has been extinct in Brazil since 1996.

The government proposed a 20% tax, with an exemption for income of up to R$ 20,000 per month for micro and small companies. The Chamber of Deputies cut the rate to 15% and expanded the exceptions. The bill is stalled in the Senate, with no expected vote.

The data obtained in the IRPF statements alone do not reflect the full picture of income distribution in the country, since only 31.6 million Brazilians reported to the Federal Revenue. But the information is a relevant thermometer to identify what happened to the income of the population in the most acute year of the health crisis.

In a division by groups, considering salaries, 13th, profits and dividends or other types of remuneration of partners, it is possible to detect that the poorest 25% reported receiving R$ 111 billion in 2020, a value below R$ 119.3 billion declared by the same share of declarants in the previous year. The group considers 7.9 million people with an income of up to R$ 28.5 thousand in the year.

The richest 1% reported income of BRL 578.7 billion in 2020, more than the BRL 545.6 billion in the previous period. Almost half of the declared values ​​come from profits and dividends, which totaled R$ 271.3 billion in this stratum of the population.

Economist Rodrigo Orair, a specialist in taxation and former director of the IFI (Independent Fiscal Institution) of the Senate, highlights that the pandemic has caused a big hit in the income of workers located in the lowest income brackets, who were fired or had temporary salary reductions. , while the higher-earning population was shielded by remote work options.

According to the IBGE (Brazilian Institute of Geography and Statistics), 8.29 million people lost their jobs in the comparison of the last quarter of 2020 with the same period of the previous year. In this range, the real average income from work fell by 1.1%.

This factor, associated with the growth of profits and dividends, indicates a trend of income concentration in Brazil. “There are indications of some concentration at the top. The most fragile are at the bottom”, says the expert.

Orair also notes that the growth in the declared value of profits and dividends has been accompanied by an increase in the number of people who fill in this field in the IRPF declaration. For him, the phenomenon can have two explanations.

“Despite the whole pandemic, the stock market did well in 2020, and the number of investors in the stock market grew. There was an opportunity, people may have entered this market”, he said.

The other possibility, according to him, is the acceleration of the phenomenon of pejotization. “How [a pandemia] greatly reduced the CLT base, they may have taken the opportunity to fit into this new employment relationship. With unemployment, he had to earn a living,” Orair said.

Economist Débora Freire, a professor at Cedeplar (Center for Development and Regional Planning) at UFMG (Federal University of Minas Gerais), says that the rise in profits and dividends could have been even greater, considering the retraction of companies’ appetite for investing in midst of the pandemic. On the other hand, growth is a sign of greater resilience of this type of income in times of crisis.

“Income from work drops a lot, while income from capital increases, precisely because they don’t suffer so much from economic cycles”, he says.

The problem, according to her, is the asymmetry of taxation, which reinforces income inequality in Brazil. Not only did wages fall in 2020, they were taxed more than profits and dividends, which rose.

“In normal times, without crisis, we already have a problem, an asymmetry in the taxation of income from work and capital. In times of crisis, we feed this asymmetry”, he criticizes.

The professor defends the approval of a broad tax reform, which includes the return of taxation on profits and dividends distributed to individuals. However, she criticizes the proposal sent by the government and which was approved at the touch of a button in the Chamber, without its content being public at the time of the vote, in early September 2021.

“The proposal did not go in the right direction precisely because it gave up revenue, with a series of exemptions for a very expressive volume of dividends”, says Freire. The text approved by the deputies exempts profits and dividends paid by companies with revenues of up to R$ 4.8 million.

“It’s a poorly calibrated reform that was later distorted. I don’t think it’s possible to discuss today a tax reform that implies a reduction in collection, exactly because we have serious social problems to deal with. We need the provision of public services”, says the professor. .

For her, the debate should end up being left for the next government, given the difficulties of advancing in an election year. “Political obstacles and the composition of the National Congress make it very difficult to pass a reform that is adequate, that promotes social justice,” she says.