Tax Implications of Bolsonaro`s Election

After Jair Bolsonaro (PSL) won the run-off elections in Brazil with 55.14% against Fernando Haddad (PT, 44,86%), entrepreneurs in Brazil and abroad ask themselves which effects his presidency will have on Brazil`s economic development.

Bolsonaro`s Economic Approach

Bolsonaro, who during campaigning himself conceded to not possess any relevant knowledge about economics, is considered a representative of a liberal-economic agenda. In the past and during his campaign he called for reduced state spending, the privatization of state-owned businesses and reduced workers` rights. With view to foreign trade, Bolsonaro favors free trade particularly with developed countries while opposing the deepening of trade relations with China.

Based on his limited experiences with view to economic issues, Bolsonaro counts on the market-liberal Paulo Guedes. Guedes himself is co-founder of Brazil`s investment bank BTG Pactual und its potential future Minister of Finance. Guedes also favors privatizations in order to reform the expensive and complex pension system. Thanks to Guedes. Bolsonaro received widespread support by banks and investors during his campaign.

Brazil`s Tax Issues

37% of Brazil`s GDP consists of tax revenues. Thus, Brazil belongs to the world`s 30 countries with the highest tax rates. Meanwhile, it ranks last when it comes to tax-financed service returns to the society. Particularly Brazil`s poorest citizens are disproportionally highly taxed: approximately 47% of tax revenues are generated from consumption taxes, 27% from taxes on salaries.

In contrast, Bolsonaro received much support from SME and the middle class that consider themselves the losers of the PT`s welfare programs and demonstrated against further tax increases.

Apart from the long-overdue pension and tax reform, the new president has to deal with the continuing corruption investigations surrounding Lava Jato, the rising crime rates, the worsening public debt rate and the adverse effects of the ongoing economic crisis of 2016.

 

Bolsonaro`s Tax Plans

Which concrete consequences Bolsonaro`s presidency will have on Brazil`s tax system remains to be seen. However, during his campaign, Bolsonaro commented on different tax issues, as summarizes in the following table:

 Tax Bolsonaro (PSL)
Individual income

tax

Two tier system: exempt of up to 5 times the minimum wage; above at 20%
Taxation of dividends taxation of dividends discussed
Federal taxes/VAT Single tax of 0.4% on all financial transactions should replace several federal taxes

 

Alternatively:

Integrate federal taxes into federal-VAT system

Land tax Not addressed
Workers’ salary tax

to fund unions

Overturn, if approved by Congress
Exports tax Not addressed
Payroll, energy and fuel sector taxes Reductions discussed
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