Originally published in the February 12 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s Senate Commission of Economic Affairs on February 9 rejected a law project that would have created a large fortune tax (imposto sobre grandes fortunas, or IGF) to be levied on some of the country’s wealthiest taxpayers. Brazil’s Constitution of 1988 provided for the creation of the IGF, but the tax was never implemented.
Sen. Paulo Paim proposed Senate Law Project 128/2008 in April 2008 to promote more equal distribution of the country’s wealth. Paim is a member of President Luiz Inácio Lula da Silva’s Workers’ Party.
The tax would apply to individuals born in Brazil and foreigners domiciled within the country. For the former, IGF would reach worldwide assets, with few exceptions; for the latter, it would apply on assets located within Brazil. The 1 percent tax would be levied on large fortunes, which are defined as personal net wealth (assets less liabilities) in excess of BRL 10 million held on December 31 of each year.
Sen. Antonio Carlos Jr. said that the IGF would never achieve its goal of fiscal equality and wealth distribution and that countries that have introduced similar taxes have yet to see satisfactory results from them. The identification of large fortunes is difficult and complex and a burden on the tax administration, especially when considering the relatively low level of tax revenue it generates, he said.
Carlos argued that in the 1980s, taxes similar to the IGF brought in 0.5 percent of tax revenue in Austria, 0.41 percent in Denmark, 0.31 percent in Norway, and 0.39 percent in Sweden. He concluded that IGF revenue would never cover the tax’s administrative costs. He said fiscal equality could be better reached through existing means such as the personal income tax.
David Roberto R. Soares da Silva