Taxation and distribution of income in Brazil: new evidence from personal income tax data

GOBETTI, SÉRGIO WULFF; ORAIR, RODRIGO OCTÁVIO

doi:10.1590/0101-31572017v37n02a01

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Brazilian Journal of Political Economy

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Articles • Rev. Econ. Polit. 37 (2) • Apr-Jun 2017 • https://doi.org/10.1590/0101-31572017v37n02a01 copy

Taxation and distribution of income in Brazil: new evidence from personal income tax data

Tributação e distribuição de renda no Brasil: novas evidências a partir de dados da DIRPF

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

able This paper presents a critical analysis of income and profit taxes in Brazil, arguing that measures adopted in the 1980s and 1990s, as a result of mainstream recommendations, hindered the redistributive role of taxes. An examination of tax data reveals a high degree of top income concentration, low tax progressivity and violations of the principles of horizontal and vertical equity. The main reason for these distortions is the complete tax exemption of dividends, a benefit that is very rarely seen in developed countries. We propose a return to a progressivity-focused tax reform plan, a theme that has returned as a focus of debates with (Piketty, 2014Piketty, T. 2014. Capital in the XXI century. Cambridge, MA: Harvard University Press.).

KEYWORDS:
Income tax; Tax progressivity; Tax reform; Income distribution; Tax data

Profit, dividends and taxes	Before Lei No. 9.249	After Lei No. 9.249	Difference
Gross profit	100	100	0
Taxable profit	100	70	-30
IRPJ (25%)	25	17.5	-7.5
CSLL (9%)	9	6.3	-2.7
JSCP	0	30	30
Withholding tax (15%)	0	4.5	4.5
Dividends	66	46.2	-19.8
Withholding tax (15%-0%)	9.9	0	-9.9
Tax total	43.9	28.3	-15.6
Shareholder participation	56.1	71.7	15.6

Country	Corporate				Personal				Total tax (B+C)/A
Country	Pre-tax profit (A)	Tax (B)	Tax (%)	Distributed profit	Withholding tax (%)	Tax over extrapolated dividends (%)	Imputation credit	Tax (C)	Total tax (B+C)/A
Australia	142.9	42.9	30	100	..	49	42.9	27.1	49
Austria	133.3	33.3	25	100	25	25	..	25	43.8
Belgium	151.5	51.5	34	100	..	25	..	25	50.5
Canada	135.7	35.7	26.3	100	..	49.5	34.5	33.8	51.2
Chile	129	29	22.5	100	..	40	29	22.6	40
Czech Rep.	123.5	23.5	19	100	15	15	..	15	31.2
Denmark	130.7	30.7	23.5	100	..	42	..	42	55.6
Estonia	125	25	20	100	..	0	..	0	20
Finland	125	25	20	100	..	33	..	28.1	42.4
France	157.2	57.2	36.4	100	..	44	..	44	64.4
Germany	143.2	43.2	30.2	100	26.4	26.4	..	26.4	48.6
Greece	135.1	35.1	26	100	10	10	..	10	33.4
Hungary	123.5	23.5	19	100	..	16	..	16	32
Iceland	125	25	20	100	..	20	..	20	36
Ireland	114.3	14.3	12.5	100	..	51	..	51	57.1
Israel	136.1	36.1	26.5	100	..	30	..	30	48.6
Italy	137.9	37.9	27.5	100	26	26	..	26	46.4
Japan	147.3	47.3	32.1	100	20.3	20.3	..	20.3	45.9
Luxembourg	141.3	41.3	29.2	100	..	40	..	20	43.4
Mexico	142.9	42.9	30	100	10	42	42.9	17.1	42
Netherlands	133.3	33.3	25	100	..	25	..	25	43.8
New Zealand	138.9	38.9	28	100	..	33	38.9	6.9	33
Norway	137	37	27	100	..	27	..	27	46.7
Poland	123.5	23.5	19	100	19	19	..	19	34.4
Portugal	146	46	31.5	100	25	28	..	28	50.7
Slovakia	128.2	28.2	22	100	..	0	..	0	22
Slovenia	120.5	20.5	17	100	25	25	..	25	37.8
South Korea	131.9	31.9	24.2	100	..	41.8	11	35.4	51
Spain	138.9	38.9	28	100	..	24	..	24	45.3
Sweden	128.2	28.2	22	100	..	30	..	30	45.4
Switzerland	126.8	26.8	21.2	100	..	21.1	..	21.1	37.8
Turkey	125	25	20	100	..	35	..	17.5	34
UK	126.6	26.6	21	100	..	37.5	11.1	30.6	45.1
USA	164.3	64.3	39.1	100	..	30.3	..	30.3	57.6

Incomes	2007	2008	2009	2010	2011	2012	2013
Taxable	968.5	1,034.60	1,071.20	1,125.20	1,197.70	1,271.00	1,293.20
Subject to withholding tax	107.6	149.8	139.3	163.6	204.9	192.7	207.4
Labour incomes	30.1	50.6	55.1	63.5	70.1	74.6	97.6
Fixed income investments	32.3	45.8	42.5	45.6	57.2	52.8	45.2
Other capital ownership incomes	45.3	53.3	41.7	54.5	77.6	65.2	64.6
Exempt	293.2	477.6	473.3	530.4	583	601.5	632.2
Labour incomes	47.2	89.2	92.1	94.8	97.5	105.8	113.5
Profits and dividends	149.4	196.9	195.8	229.7	257	271.4	287.3
Other capital ownership incomes	65	128.2	127.3	145.8	167.8	166.5	171.9
Asset transfers	31.7	63.3	58.2	60.3	60.6	57.9	59.4
Total	1,369.40	1,661.90	1,683.80	1,819.20	1,985.50	2,065.20	2,132.70

Income brackets (in BRL thousands)	Taxpayer		Income				Composition of income (%)
Income brackets (in BRL thousands)	No.	Part. (%)	Taxable	Withholding tax	Exempt	Total	Taxable	Withholding tax	Exempt	Total
Up to BRL24.4	5,555,771	100	67,481	2,156	5,920	75,557	89.3	2.9	7.8	100
From BRL24.4 to BRL40.7	7,882,026	100	215,200	13,691	21,128	250,018	85.9	5.6	8.4	100
From BRL40.7 to BRL81.4	7,300,376	100	331,748	29,400	57,667	418,815	78.7	7.6	13.7	100
From BRL81.4 to BRL162.7	3,522,174	100	285,867	30,799	82,920	399,587	70.6	8.9	20.5	100
From BRL162.7 to BRL325.4	1,507,344	100	212,060	29,274	99,739	341,072	61.1	10.2	28.7	100
From BRL325.4 to BRL650.9	518,567	100	109,013	22,815	96,756	228,584	46.7	11.9	41.4	100
From BRL650.9 to BRL1.301.8	136,718	100	34,452	14,717	72,002	121,171	27.7	14.3	57.9	100
Over BRL 1.301.8	71,440	100	37,384	64,510	196,040	297,934	12	24.9	63	100
Total	26,494,416	100	1,293,205	207,361	632,171	2,132,738	59.6	11.2	29.2	100
Declarations from recipients of dividends and distributed profits, including micro entrepreneurship profits
Up to BRL24.4	175,986	3.2	1,385	56	1,271	2,132,738	2,712	51.1	2.1	46.9	100
From BRL24.4 to BRL40.7	280,036	3.6	5,369	211	3,605	9,185	58.5	2.3	39.2	100
From BRL40.7 to BRL81.4	481,078	6.6	12,828	902	15,051	28,781	44.5	3.3	52.2	100
From BRL81.4 to BRL162.7	460,465	13.1	20,060	2,350	31,733	54,143	36.8	4.9	58.3	100
From BRL162.7 to BRL325.4	361,166	24	29,751	4,969	49,639	84,359	34.9	6.9	58.2	100
From BRL325.4 to BRL650.9	209,954	40.5	29,431	7,149	58,737	95,317	30.4	8.9	60.7	100
From BRL650.9 to BRL1.301.8	80,719	59	14,584	7,112	50,770	72,465	19.7	11.6	68.7	100
Over BRL1.301.8	51,419	72	19,913	48,458	160,977	229,348	8.3	24.3	67.3	100
Total	2,100,823	7.9	133,319	71,208	371,783	576,310	22.6	14.4	63	100
Declarations from non-recipients dividends and distributed profits, including microentrepreneurship profits
Up to BRL24.4	5,379,785	96.8	66,096	2,100	4,649	72,845	90.7	2.9	6.4	100
From BRL24.4 to BRL40.7	7,601,990	96.4	209,831	13,480	17,523	240,834	87	5.8	7.3	100
From BRL40.7 to BRL81.4	6,819,298	93.4	318,920	28,498	42,616	390,034	81.2	7.9	10.9	100
From BRL81.4 to BRL162.7	3,061,709	86.9	265,808	28,449	51,187	345,444	75.9	9.5	14.6	100
From BRL162.7 to BRL325.4	1,146,178	76	182,309	24,304	50,100	256,713	69.6	11.3	19.1	100
From BRL325.4 to BRL650.9	308,613	59.5	79,582	15,666	38,019	133,267	58.2	14	27.8	100
From BRL650.9 to BRL1.301.8	55,999	41	19,868	7,605	21,233	48,706	39.5	18.4	42.2	100
Over BRL 1.301.8	20,021	28	17,472	16,052	35,062	68,586	24.3	27	48.7	100
Total	24,393,593	92.1	1.159,886	136,153	260,388	1,556,428	73.5	10	16.5	100

Income brackets (in BRL thousands)	No. of taxpayers	Taxable				Withholding tax		Exempt	Total
Income brackets (in BRL thousands)	No. of taxpayers	Income	Deductions	Tax base	Average rate	Income	Average rate	Exempt	Income	Average rate
Up to BRL24.4	5,555,771	12,146	-2,338	9,935	0	388	0	1,066	13,600	0
From BRL24.4 to BRL40.7	7,882,026	27,303	-6,699	20,825	0.5	1,737	2.9	2,681	31,720	0.6
From BRL40.7 to BRL81.4	7,300,376	45,443	-12,328	33,318	3.7	4,027	8.4	7,899	57,369	3.5
From BRL81.4 to BRL162.7	3,522,174	81,162	-19,022	62,356	10.7	8,744	14.2	23,542	113,449	8.8
From BRL162.7 to BRL325.4	1,507,344	140,684	-26,918	114,392	16.4	19,421	17.4	66,169	226,273	11.8
From BRL325.4 to BRL650.9	518,567	210,220	-36,508	174,617	19	43,997	17.9	186,583	440,800	11
From BRL650.9 to BRL1.301.8	136,718	251,994	-39,279	213,699	20.5	107,642	17.3	526,649	886,285	8.2
Over BRL 1.301.8	71,440	523,295	-104,501	421,583	20.8	902,994	16.9	2,744,117	4,170,406	6.7
Total	26,494,416	48,811	-11,139	37,914	8.8	7,827	14.6	23,861	80,498	6.9
Declarations from recipients of dividends and distributed profits, including microentrepreneurship profits
Up to BRL24.4	175,986	7,869	-1,653	6,407	0	319	0	7,223	15,410	0
From BRL24.4 to BRL40.7	280,036	19,173	-4,182	15,118	0.2	754	0.3	12,872	32,799	0.1
From BRL40.7 to BRL81.4	481,078	26,665	-6,582	20,265	2	1,874	5.4	31,286	59,826	1.1
From BRL81.4 to BRL162.7	460,465	43,564	-10,809	33,027	6.9	5,104	11.7	68,915	117,584	3.1
From BRL162.7 to BRL325.4	361,166	82,374	-18,347	64,554	13.2	13,760	15.5	137,440	233,573	5.7
From BRL325.4 to BRL650.9	209,954	140,176	-28,497	112,453	16.8	34,051	16.9	279,762	453,989	6.6
From BRL650.9 to BRL1.301.8	80,719	180,672	-32,623	149,135	18.7	88,107	16.8	628,970	897,749	5.6
More than BRL1.301.8	51,419	387,264	-65,322	324,570	21.1	942,419	16.7	3,130,698	4,460,381	5.8
Total	2,100,823	63,461	-13,427	50,442	13.1	33,895	16.3	176,970	274,326	5.3
Declarations from non-recipients of dividends and distributed profits, including microentrepreneurship profits
Up to BRL24.4	5,379,785	12,286	-2,361	10,050	0	390	0	864	13,541	0
From BRL24.4 to BRL40.7	7,601,990	27,602	-6,792	21,036	0.6	1,773	3	2,305	31,680	0.7
From BRL40.7 to BRL81.4	6,819,298	46,767	-12,733	34,238	3.7	4,179	8.5	6,249	57,196	3.7
From BRL81.4 to BRL162.7	3,061,709	86,817	-20,257	66,767	11	9,292	14.4	16,718	112,827	9.7
From BRL162.7 to BRL325.4	1,146,178	159,058	-29,619	130,097	16.9	21,205	17.7	43,711	223,973	13.8
From BRL325.4 to BRL650.9	308,613	257,871	-41,958	216,909	19.9	50,764	18.3	123,192	431,827	14.1
From BRL650.9 to BRL1.301.8	55,999	354,801	-48,875	306,764	21.8	135,800	17.8	379,160	869,760	11.9
More than BRL1.301.8	20,021	872,659	-205,125	670,737	20.4	801,740	17.4	1,751,279	3,425,678	9.7
Total	24,393,593	47,549	-10,942	36,835	8.3	5,582	13.7	10,675	63,805	7.5

Cumulative portion of population	Participation in total pre-PIT income			Participation in total post-PIT income			Average tax rate
Cumulative portion of population	Labour	Capital	Total	Labour	Capital	Total	Labour	Capital	Total
Up to 10%	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
From 10% to 20%	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
From 20% to 30%	1.8	0.0	1.8	1.9	0.0	1.9	0.0	0.0	0.0
From 30% to 40%	4.4	0.0	4.4	4.6	0.0	4.6	0.0	0.0	0.0
From 40% to 50%	4.6	0.0	4.6	4.8	0.0	4.8	0.0	0.0	0.0
From 50% to 60%	5.6	0.0	5.7	5.9	0.0	5.9	0.0	0.0	0.0
From 60% to 70%	7.1	0.1	7.3	7.4	0.1	7.6	0.0	0.0	0.0
From 70% to 80%	9.2	0.2	9.4	9.6	0.2	9.8	0.0	0.0	0.0
From 80% to 90%	13.1	0.8	13.9	13.6	0.8	14.4	0.2	1.0	0.3
From 90% to 95%	9.8	1.2	11.0	9.9	1.2	11.2	3.0	3.2	3.0
From 95% to 96%	2.7	0.4	3.1	2.7	0.4	3.1	3.8	3.3	3.8
From 96% to 97%	3.1	0.7	3.8	2.9	0.7	3.6	10.2	3.3	8.9
From 97% to 98%	4.0	0.8	4.7	3.7	0.8	4.5	10.2	3.3	9.1
From 98% to 99%	5.4	1.6	7.0	4.9	1.7	6.5	13.4	3.1	11.0
From 99% to 99.5%	3.9	1.3	5.1	3.4	1.3	4.7	15.3	3.0	12.3
From 99.5% to 99.9%	4.5	3.1	7.6	3.9	3.1	7.1	16.8	2.8	11.1
From 99.9% to 99.95%	0.7	1.3	2.0	0.6	1.3	1.9	16.3	2.7	7.7
From 99.95% to 100%	2.3	6.2	8.5	2.0	6.2	8.2	14.8	4.1	7.0
Total	82.2	17.8	100.0	82.1	17.9	100.0	4.5	3.2	4.3
Gini index	-	-	0.6466	-	-	0.6319	-	-	-

Tax alternatives	Revenue (BRL billion)	Affected taxpayers (millions)	Gini index
Tax alternatives	Revenue (BRL billion)	Affected taxpayers (millions)	Pre-PIT	Post-PIT	Growth Rate
Current PIT structure	149.7	-	0.6466	0.6319	-2.3%
1. Reinstitution of dividends taxation by the 15 per cent linear rate	192.83	2.101	0.6466	0.6276	-2.9%
2. Taxation of dividends by progressive rates (0-27.5%)	216.16	1.342	0.6466	0.6249	-3.4%
3. Raise of the top rate (30%) and creation of three additional rates (35%, 40% and 45%), maintaining the exemption of dividends	190.12	4.616	0.6466	0.6271	-3.0%
4. Inclusion of an additional rate and taxation of dividends by progressive rates (0-35%)	227.89	1.472	0.6466	0.6236	-3.6%

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[TFN1] Source: Authors’ elaboration.