Taxation of the super-rich

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By JOÃO CARLOS LOEBENS*

In the Brazilian tax system, the poorer you are, the more tax you pay; the richer, the less tax you pay

The Brazilian tax system, nowadays, has a general characteristic that could be summarized as follows: the poorer you are, the more tax you pay; the richer you are, the less tax you pay.

Super-rich Brazilians, then, pay practically nothing.

This month, the federal government issued two measures to tax some of the income (“salaries”) of super-rich Brazilians. Oops! It messed with me! Are you super rich or do you know someone?

There is no need to worry, it is most likely not your concern, as 99,999% of Brazilians will benefit from both measures. For example, if the sum of your assets is R$10 million reais, you will not be affected, as the taxation is not on assets. This is not about taxation on wealth. Taxation is on income (“salary”) from investments for those who have more than R$10 million reais left to invest in closed-end financial funds.

The federal government's first initiative is Provisional Measure 1.184, to tax the investment funds of approximately 2.500 super-rich people (0,001% of Brazil's population), who have privileged rules just for them, and do not pay taxes. These are called closed-end funds, with an initial or minimum financial investment of 10 million reais.

And how much would the income/salary be for an application of this type? Let's assume a minimum investment of 10 million at a rate of 1% per month, which would give an income/salary of R$ 100.000,00 reais/month, today without paying any income tax. Other Brazilians, with income/salary starting at R$ 2.112,00, are obliged to pay IR, with a rate of up to 27,5% for income above R$ 4.664,00 reais.

Do you want to be a billionaire? A tip on what you would need to do: you save one million reais a year. Do this for a thousand years. Adding R$1.000.000,00/year for 1.000 years, in the end you will be a super-rich billionaire. Simple, right? The explanation or justification given for this concentration of billion-dollar income would be meritocracy, which can be better understood in the clarifications in the book The tyranny of merit, by American writer Michael Sandel.

Forbes listed 2022 billionaires (oligarchs?) in Brazil in 62, the largest of them being Jorge Paulo Lemann, with an estimated fortune of R$71 billion. Jorge Paulo Lemann is the controller of Ambev, has a stake in Burger King and the company 3G Capital, the new “owner” of Eletrobras. It is worth remembering that Lemann, together with Sicupira and Teles (two other Brazilian billionaires on the Forbes list, Ambev, Eletrobras...), were the protagonists of the recent scandal, fraud or breach of Americanas, something around 40 billion.

Returning to the measures presented by the government. The proposal is to equalize the taxation of these exclusive, or closed, funds, charging 15% to 22,5% on income, equal to the open investment funds that other Brazilians invest in, such as in Tesouro Direto (anyone can invest in Tesouro Direto using your home computer – much better than savings accounts).

The expected revenue from these closed-end funds belonging to the super-rich is expected to be R$24 billion by 2026, which would be enough to finance, for example, 30% of Minha Casa Minha Vida. It is an important initiative to reduce inequalities in our country, the most unequal in the world!

The second measure is a Bill to tax income from capital invested in countries called “tax havens”, which I prefer to call “fiscal-criminal hiding places”, such as Switzerland, the Cayman Islands, Luxembourg and the United Arab Emirates. The main financial product that these countries sell is the hiding of money/assets, normally of illicit origin (money from robbery, trafficking, corruption/evasion/embezzlement), and mainly they hide these resources to enable the super-rich owners to escape from obligation to pay taxes in the country of origin, as other citizens are obliged to pay.

In the so-called PL for Offshores and Trusts, the proposal is to tax the income from Brazilian capital invested abroad at progressive rates from zero to 22,5%. The world average is 30 to 40%. Only Brazil doesn't charge!

These two measures can be considered a start towards fiscal justice, to change this bad and unconstitutional Brazilian rule of “the richer the less tax you pay”. The Constitution says that income taxation must be universal and progressive.

In the National Congress, the super-rich have many representatives! And it is precisely Congress, through deputies and senators, that needs to approve these measures.

So, will the super-rich pay any income tax on their income/salaries from these specific investments? It will depend on Congress, it will depend on your deputy and your senator.

*Joao Carlos Loebens is a doctoral student in economics and tax auditor at the State Revenue Service of Rio Grande do Sul.


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