Government advertisements are proliferating across the country promoting income tax (IR) reform as a tax justice measure. At a cost of R$25 million, official advertising boasts that those who earn less than R$5,000 per month (R$60,000 per year) will no longer pay IR, while the “super rich” — those who, according to the government, receive more than R$50,000 per month (R$600,000 per year) — will pay a minimum tax rate of up to 10%. The objective of the propaganda is obviously electoral. The IR exemption is a powerful argument to convince middle-class voters. The “fairer” IRs promoted by the government will not, however, reach the civil service elite with the same severity, who take advantage of compensation funds and other “frictions” to inflate their super salaries.
- Superpensions above the constitutional ceiling: 10,000 retirees and public sector retirees cost the country 4 billion reais per year
Typically, the majority of these funds—housing allowance, food allowance, paid leave, bonuses, or other supplemental payments—are considered tax-exempt income because their purpose is to repair any losses or reimburse expenses necessary to perform the job. They are therefore not included in the total tax, which is generally imposed at rates of up to 27.5%. The reform, however, provides that even exempt income is added together to calculate the minimum tax rate (although it excludes certain categories). The rules that the Federal Revenue Service will stipulate for the various “hangings” are uncertain. But, even if they are taken into account in the calculation of the minimum income tax, the taxation of those for whom they represent the bulk of the remuneration will be anything but “fairer”.
- Editorial: In addition to super salaries, ‘hangings’ also inflate super pensions
Let’s just take an example. The public sector salary cap is equivalent to an annual income of R$630,000, of which the employee receives 27.5% after all allowed deductions (at most, just over R$170,000). This means that he can receive up to 1.7 million reais per year, adding the “trimmables” and he will not pay a cent more in taxes. If you receive R$2 million, you will only pay 10% of the difference of R$300,000, or R$30,000. There will therefore be R$170,000 of what is received as salary, plus R$30,000 of nearly R$1.4 million received in the form of “trinkets” (the equivalent of a tax rate of 2.2%).
A recent study by the organizations Movimento Pessoas in Frente and República.org revealed, out of a sample of 4 million civil servants, that there are 40,000 who, in addition to earning above the constitutional ceiling, belong to the 1% with the highest incomes in the country – they are part of the group of “super-rich” in government propaganda. The civil service elite represents, according to the study, at least 2.7% of the Brazilian economic elite. In the universe studied, approximately 10,800 judges received more than one million reais in 2023 (in corrected values). These are therefore not exceptional cases. To make IR truly “fairer”, the least reform would be to subject “hangings” to the same taxation as the rest of the remuneration. This way, those earning super salaries would pay 27.5% on them, not zero or ridiculous rates.
About The Author
