BRASILIA (Reuters) – A Brazilian Congressional mixed commission delayed examining a government proposal on Wednesday that would prevent companies from using state-granted corporate tax discounts to reduce taxable income for federal revenue purposes, a proposal that would increase government revenue.
Brazil says the measure would raise 35.3 billion reais ($7.10 billion) in revenue in 2024, and it is deemed crucial for President Luiz Inacio Lula da Silva’s plan to erase the primary budget deficit next year.
The commission’s president, Senator Rogerio Carvalho, said discussions would resume on Thursday afternoon.
He accepted the postponement request from lawmakers after the measure’s sponsor, lawmaker Luiz Fernando Faria, presented a report easing terms originally set by the government.
After Brazil’s Superior Court of Justice (STJ), the top appeals court for non-constitutional matters, ruled in favor of the government’s thesis concerning the amounts companies owed, Faria’s report proposed a potential 80% discount on the consolidated debt with payment in 12 months.
It would also be possible to pay 5% of the total debt in five monthly installments, with the remaining balance being paid in five or seven years, with a discount of 50% or 35%, respectively.
In line with indications made by Finance Minister Fernando Haddad, Faria also incorporated into his text changes to “interest on equity” (JCP) payments, which currently allow companies to deduct shareholder remuneration from their corporate tax obligations.
Originally, the government aimed to raise 10.5 billion reais next year by eliminating JCP, but Faria said his changes softened the government text, which was “much harsher.”
According to his report, the calculation base for JCP would now exclude “positive variations in net worth resulting from corporate acts between dependent parties that do not involve the actual entry of assets into the company, with a permanent increase in net worth, regardless of the provisions of accounting standards.”
In other words, companies can no longer deduct taxes from profits if those profits do not result from adding new assets into the company and permanently increasing net worth.
($1 = 4.9701 reais)
(Reporting by Marcela Ayres; Editing by Josie Kao)
