The TCU has conducted an audit on income taxation and recommends that the federal government propose legislative changes to reform corporate taxation and revise the personal income tax table.
The Federal Court of Accounts (TCU) in Brazil has completed an audit focused on the country's income tax system, particularly examining the Simples Nacional tax regime and its implications on corporate taxation. The audit was carried out between April and November 2023 by TCU minister Augusto Nardes and aimed to provide insights to Congress for potential reforms in the National Tax System. The TCU specifically noted challenges related to the phenomenon of 'pejotização', where individuals opt to become corporations to benefit from lower tax obligations.
One of the critical findings of the audit was the lack of neutrality and equity in the current tax system, with significant deficiencies identified in how different taxation regimes operate. The TCU highlighted that this practice of converting from individual tax status to corporate status could undermine the overall tax framework, leading to inequitable tax burdens and undermining public revenue generation. As such, the TCU has urged the federal government to consider the formulation of legislative proposals aimed at rectifying these issues.
If implemented, these recommendations could lead to significant changes in Brazil's tax landscape, impacting individuals and corporations alike. A reform of corporate taxation and a review of the progressive personal income tax table could address the imbalances noted by the TCU, promoting a more equitable tax system that ensures fairness and enhances revenue collection for the government. The outcomes of these recommendations may also be pivotal in shaping broader economic policies in Brazil and could influence future legislative decisions in Congress regarding taxation and economic reform.
