Creating taxes that affect companies or citizens with “above average” incomes and assets has a strong political appeal, as it is usually accompanied by beautiful speeches aimed at the social sphere, but the end result is usually unsatisfactory and often leads to real disaster. And there are plenty of sad examples in the world.
In fact, we recently ran one such political experiment in our neighboring Argentina, which favored the taxation of large fortunes. And the result could not have been more deplorable: a meager collection (well under US$3 billion in 2021), which was accompanied by a huge distaste for conserving resources and investing in the country, which means, of course, a drop in overall revenue in the medium and long term.
In Brazil, fortunately, the “above average” asset forfeiture debate has so far been limited to academic centers and social movements of dubious representation. What worries us today is the naturalization of the ability to tax the supposed “free income” of the “wealthiest”, which is profit distributions or dividends, in addition to the superficial arguments that have been used to do so.
For example, proponents say that “Brazil is one of the few countries in the world that does not tax dividends”forgetting, however, to also mention that the same country ranks second in the world in taxing the income of companies that generate these dividends, at a rate of 34% of their profits, second only to Malta (see OECD).
And when the political discourse gets a little more radical, even the worker joins the fray, declaring the unfairness of levying income tax on wages and not demanding it on dividends. In fact, the progressive income tax table is insulting, but it doesn’t even come close to what it means to have a high risk of doing business in Brazil and, if the company is successful (which few are capable of), having to surrender more than 1/3 of the accrued profits to the state. Hiding this “however” in the figure of the company, it seems that the intention of the legislator at the time was to create this type of “class conflict”.
And as for the fact that this is the “income of the richest”, even this is not true, since this is also the income of liberal professionals who receive as a legal entity (for example, masons, carpenters, hairdressers) or small investors who have part of their savings used in the stock exchange.
Bill 2337/2021 is currently making great strides, which has already been approved by the House of Representatives and, under the current text, will apply a 15% rate to dividends to be distributed. There are some interesting offsets in this bill (such as cuts to corporate income taxes), but nothing substantial to make up for the breakdowns in communications with the government that could result, and worse, the investment aversion that this measure would cause. entails, is itself capable of generating.
For example, a permanent increase in the Selic rate and the subsequent increase in the attractiveness of investments in fixed income tend to have a strong impact on the capital market, hurting the real Brazilian economy and, in the next moment, causing tax cuts. collection. What about entrepreneurship? Well, it will be given to the bravest who still remain in this country.
Finally, the answer to the question of whether there is a benefit from creating a tax on dividends is categorical: no, definitely not, and the answer is the same for any tax that is supposed to be introduced in Brazil, since this is already a country that, if not achieved, is very close reaching the limit of the so-called Laffer curve, where an increase in the tax burden will lead to successive drops in collection. But until the state is convinced that the ideal is to reduce its size, we, unfortunately, will constantly remain hostages of this possibility.