Brazil Increases Income Tax Rates on Equity Payments in New Fiscal Package
BRASILIA (Reuters) – Brazil’s Finance Minister Fernando Haddad announced on Tuesday that the government’s latest fiscal package includes a hike in the income tax rate on interest on equity (JCP) payments from 15% to 20%. JCP is a method of shareholder remuneration that allows companies to deduct these payments from their corporate tax base.
Haddad explained that the decision to implement this measure, which was previously proposed by the government but not approved by Congress, was made following requests from lawmakers. In addition to the increase in the JCP tax rate, the fiscal package also includes the unification of income tax rates on financial investments at 17.5%, replacing the current sliding scale ranging from 15% to 22.5% based on the investment’s holding period.
Under the new rate structure, all investments, including stocks and bonds, will be subject to the 17.5% tax rate, with the exception of those currently exempt from income levy. These exempt investments will now be taxed at 5%, as previously disclosed by Haddad.
Returning from a meeting with President Luiz Inacio Lula da Silva, Haddad confirmed that the additional revenue generated from these measures will primarily be used to revise the financial operation tax (IOF) hike on forfait operations. The IOF decree, aimed at increasing public revenues, faced backlash from Congress and market players, leading the government to seek alternative solutions to avoid potential overturning of the measure.
Defending the new fiscal measures, Haddad highlighted their potential to strengthen the Brazilian currency, facilitate interest rate reductions, and ensure compliance with fiscal targets for 2021 and 2026. These steps are crucial for economic stability and growth in the country.
(Reporting by Marcela Ayres; Editing by Gabriel Araujo and Chizu Nomiyama)
