President Jair Bolsonaro’s request to the Federal Revenue Secretary, Marcos Cintra, was recently reported in the press to study the revaluation of equity values declared in the income tax. The measure was announced as a means to obtain greater revenue for the Government without increasing taxes. A few days later, the press also reported that a Senate bill (PLS 1/2017), now filed, had already proposed a similar measure to update real estate values.
The purpose of this text is to explain what such a proposal really means, if carried out. Although the Government has only presented an idea, not a proposal, it is possible to state that: (i). any taxation in this regard will need to be optional, and not mandatory (that is, the taxpayer may choose not to participate); (ii). the measure means an advance of the collection, and not an increase of taxes; and (iii). it is recommended that a measure like this be done only once, instead of being permanent.
What is the logic of maintaining the value of goods and rights declared at cost
The purpose of the income tax declaration is to record the taxpayer’s equity increase, which is the object of income tax (CTN, art. 43). In this sense, it is important to keep a record of the assets and rights at the respective acquisition cost. In the case of a house sale, for example, the difference between the price received and the declared acquisition cost is an equity increase on which the income tax may fall.
This is different, for example, from the declaration of Brazilian capital abroad (DCBE), made to the Central Bank. The latter is interested in keeping a wealth stock’s record held by Brazilians abroad for statistical purposes, which requires the best possible assessment of the market value of the assets and rights. The acquisition cost is only relevant if it is not possible to identify the market value of the asset.
For this reason, reevaluating the assets and rights informed in the income tax return is only of interest for the purpose of organizing the tax collection. Historical examples of this type of measure illustrate this objective.
Revaluation that has already occurred in the past
It is not the first time that it has been proposed to update the amount informed by the taxpayer for income tax purposes. During the Collor Government, Law no. 8,383 / 1991, whose article 96 provided for the revaluation of all assets and rights informed by the individual in the income tax return. All assets and rights would be reported according to their market value on December 31, 1991. The increase in comparison with the previous statements, in that case, would be considered exempt income and the new value would be considered a cost in the calculation of the capital gain of any disposal after that date.
The reassessment made by Law no. 8.383 / 1991 emerged in a different context from ours. There, the objective was not simply to collect money, but to use the old Ufir as a monetary correction index for all items reported in the income tax return. Thus, all assets and rights existing on December 31, 1991 would be informed by their value in Ufir, so that the future capital gain would be automatically updated by inflation.
It is worth mentioning that, with the Real Plan, monetary correction was prohibited, allowing the acquisition cost to be updated until January 1, 1996 (Law No. 9,249 / 1995, art. 17).
It is necessary to comment that the reassessment made by Law no. 8,383 / 1991 was mandatory, and this is justified, in our view, for two reasons: (i). valuation was exempt; and (ii). the measure would be performed only once. The taxable event of income tax is the “economic or legal availability” of income (CTN, art. 43). A reassessment does not, in itself, mean availability: it is important that the taxpayer can use the asset as if he already enjoyed an increase in assets. For low-liquid assets, such as real estate, it is quite controversial whether the taxable event took place before a transaction to asset dispose.
What the Senate Bill 1/2017 proposed
PLS 1/2017, authored by the then senator Flexa Ribeiro (PSDB-PA), proposed the revaluation of properties by individuals as follows:
- submit a specific statement with the market value of the properties on December 31, 2016;
- tax the capital gain corresponding to the positive difference between that market value and the acquisition cost at a fixed rate of 10%;
- collect the tax in a single installment;
- from then on, the market value on December 31, 2016 would be adopted as a cost for the future sale of the property; and
- the income tax reduction factors, applicable to the capital gain on the sale of properties, would be counted from January 2017.
The justification of the bill was the same as that of the Government: to obtain an increase in short-term revenue. The 10% rate is lower than the normal 15% to 22.5% rate, so there would be an incentive for the taxpayer to join.
The greatest contrast between PLS 1/2017 and art. 96 of Law no. 8,383 / 1991 is the fact that there is an optional tax here. The wording proposed by PLS 1/2017 made it clear that the taxpayer “could” present the property declaration at market value, which means that it would be the taxpayer should choose to submit to such taxation.
The justification is in the same provision of the National Tax Code (CTN): if it cannot be said that the taxpayer had availability over an equity increase, he cannot be forced to collect the tax. Withdrawal must be optional.
What to expect from an eventual Government Project
If the idea presented by the Government becomes an effective proposal, one should not expect anything very different from that proposed by PLS 1/2017. It would even be possible for PLS 1/2017 to be unarchived to serve as a basis for the Government’s proposal.
It is questionable to know to what extent this idea would represent an effective collection. Taxpayers would need to have liquidity to pay the tax, anticipating a benefit they may not enjoy at all. For example, if a person remains in the property of a property that he does not intend to sell, the stimulus of the project is very low, even if the rate is lower than the normal rate.
In the case of real estate, the law already allows reducers in updating to market value in exceptional circumstances, such as the transfer of the property in donation or inheritance. The new benefit would conflict with the existing tax benefits. Therefore, we understand that an exceptional measure like this would only promise to add complexity to the legislation, instead of reaching the collection intended by the Government.
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