Brazil’s Executive branch has proposed different tax measures that would decrease the expected 30 billion Reais (R$) deficit for 2016 to avoid a budget deficit.
Tax incentives
Under the proposal, tax incentive for export companies will reduce REINTEGRA (tax refund on the production chain of exported products) and tax refund rates will be varies from 0.1% to 3% and the rate would be limited to 0.1% in 2016, 1% in 2017, 2% in 2018, and 3% in 2019. The proposal is forecasted to increase R$2 billion in revenue for export companies and R$800 million for the chemical industry. At the same time, the proposal would limit the interest rate applied to net equity to 5%, and increase the applicable withholding tax (WHT) on INE from 15 to 18%. This proposal is expected to raise R$1.1 billion in revenue.
The proposal also would permit a deduction from the amount due to the “S” system for the amount of corporate income tax (CIT) or payroll taxes related to the R&D incentive which is expected to increase R$2 billion in revenue.
Withholding tax on capital gains:
According to the proposal in Provisional Measure (MP) 692, capital gains earned by individuals would be subject to new WHT rules and rates. The WHT rates will be varies from 15% to 30%.
These new provisions will be effective from 1 January 2016.
