Organization and distribution of taxation in Brazil

Tax burden and distribution

The weight of fiscal pressure in Brazil has continued to grow since the return to democracy in 1985, to reach around 34% of GDP today.

According to figures published by the Federal Revenue of Brazil (“Tax Charge in 2016”), approximately 48% of the total tax burden comes from indirect taxes, which apply to consumption, 20% corresponds to direct tax on income and capital gains (capital gains) and 26% on wages.

In Brazil, there is no indirect tax identical to VAT, but there are several different taxes that apply depending on the local authority concerned (Union, State or Municipality) and according to the products concerned.

The main taxes and contributions

The Federal Constitution of Brazil of 1988 distributed tax jurisdiction among the three entities of the federation, as follows:

The UNION is competent to set income taxes; imports and exports; industrialization; financial products; rural property and large fortunes.

STATES have jurisdiction to set inheritance and gift taxes; ownership of automobiles; and, above all, the tax on the movement of goods and services – ICMS;

The MUNICIPALITIES set and collect property taxes and those relating to the transfer of real estate (ITBI); housing tax (IPTU); and the tax on services – ISS, payable by service provider companies having their headquarters or an establishment in the municipality.

A tax system more favorable to capital and large incomes

With a tax rate of 48% on consumption in 2017, Brazil continues to favor indirect tax over direct tax, even after 14 years of government by the Workers’ Party-PT, with the Lula presidencies first and Dilma then who have not increased the importance of direct taxation.

The Brazilian tax organization is all the more unfavorable to the less wealthy as the tax on large fortunes, provided for in the Constitution, has never been implemented and the dividends distributed do not suffer any tax.

Similarly, inheritance tax (inheritance), the responsibility of the States, varies between the States but remains low on average, from 4% to 5%, even if a national debate is increasingly questioning this low taxation.

As for personal income tax, it is subject to low progressivity, as shown in the table below for 2018.

Base in reals Rate (%) Amount to be deducted

Up to 1,903.98 – –
from 1,903.99 to 2,826.65 7.5 142.80
from 2,826.66 to 3,751.05 15,354.80
from 3,751.06 to 4,664.68 22.5 636.13
above 4,664.68 27.5 869.36