Income Tax and How It is Used in Brazil

It is essential to know How Income Tax Works and How It is Used in Brazil, below I will tell you about this subject.

Certainly, the Income Tax (IR) is one of the most important taxes in Brazil, levied on the annual income of individuals and legal entities.

However, the federal government charges it to generate essential resources for the country.

Every year, millions of Brazilians face this obligation and, even so, many doubts persist about how the tax works, who must pay it and how the amount collected is used.

Below, we will explain what Income Tax is, how to calculate the amount to be paid, who needs to declare it and how the government uses the resources collected.

What is Income Tax?

Firstly, the Income Tax It is a federal tax that is levied on the income of individuals (natural persons) and companies (legal entities).

So he charges a portion of the income and of the income of any nature, including salaries, investments, rents and pensions.

Thus, the calculation of Income Tax uses a progressive logic. The higher the income, the higher the tax rate.

Ultimately, this method allows the tax to be proportional to the purchasing power of each taxpayer, promoting greater tax justice.

How Does Personal Income Tax Work?

Firstly, the Personal Income Tax (IRPF) works as follows:

1. Annual Declaration

Every year, between March and April, individuals must make the Income Tax Declaration the Federal Revenue, reporting your income, expenses and assets.

In this statement, you must include data such as:

• Salaries, investments, rents and other sources of income;
• Assets and rights, such as real estate and vehicles;
• Deductible expenses, such as health, education and dependent expenses.

2. Progressive Tax Rates

Then, the IRPF uses rates that vary according to the taxpayer's income bracket, following a progressive table:

• Up to R$ 1,903.98 per month: exempt;
• Between R$ 1,903.99 and R$ 2,826.65: rate of 7.5%;
• Between R$ 2,826.66 and R$ 3,751.05: rate of 15%;
• Between R$ 3,751.06 and R$ 4,664.68: rate of 22.5%;
• Above R$ 4,664.68: rate of 27.5%.

Therefore, the Federal Revenue Service calculates the tax amount based on the income bracket.

After all, taxpayers who paid more than they owed throughout the year receive the difference in restitution.

3. Discounts and Deductions

The IRS allows taxpayers to deduct some expenses, which reduces the amount of tax payable.

Thus, expenses with education, health It is dependents are some of the expenses that qualify for deductions.

4. Income Tax Refund

So, when the taxpayer pays more tax than he should, the Federal Revenue Service returns the difference.

A restitution occurs in payment batches between May and September of the year following the declaration.

Who Needs to File an Income Tax Return?

Firstly, the obligation to declare Income Tax depends on some criteria. The following must file the declaration:

• Anyone who had taxable income greater than R$28,559.70 in the year;
• Who received exempt income or non-taxable above R$ 40,000.00;
• People with assets or rights worth more than R$300,000.00;
• Anyone who carried out operations on the Stock Exchange or made profits from the sale of goods;
• Anyone who received emergency aid in 2020 and had an annual income above R$22,847.76 (criteria applied during the pandemic).

Ultimately, these criteria ensure that the Federal Revenue Service monitors taxpayers’ assets and earnings.

How Does Income Tax Work for Companies?

However, in the case of companies, the Corporate Income Tax (IRPJ) is levied on profits, not income. There are three main methods for calculating IRPJ:

• Real Profit: based on adjusted net income;
• Presumed Profit: uses an assumed profit margin, facilitating calculation;
• Simple National: offers a simplified form for micro and small businesses, with a single rate.

How Does the Government Use Income Tax?

Income Tax resources finance various areas and public services. See how the government uses these funds:

1. Health and Education

A significant portion of Income Tax goes to the sectors of health It is education.

The government uses these resources to maintain hospitals, vaccination programs, medicines, teachers' salaries and school infrastructure.

Higher education access programs, such as FIES and the ProUni, are also financed by this amount.

2. Infrastructure and Transport

The government uses the tax collected to invest in infrastructure and transportation, such as roads, railways and airports.

These investments improve urban mobility, integrate the country's regions and boost economic development.

3. Public Safety

Income Tax also finances the public safety, paying for salaries, equipment and infrastructure for police forces and other security institutions.

4. Social Security and Assistance

The government allocates part of the Income Tax to Social Security and programs of social assistance, such as retirement and pensions.

These resources guarantee the payment of benefits to millions of Brazilians.

5. Social Development and Income Programs

Programs like Brazil Aid and other income transfer programs for low-income families are also financed with income tax money.

These programs help to reduce social inequality in the country.

6. Payment of Public Debt

Part of the funds raised is used to pay interest on public debt.

This helps maintain fiscal balance, reduces inflation and improves Brazil's credibility with investors and creditors.

The Importance of Income Tax for Brazil

O Income Tax is fundamental for the Brazilian economy.

In addition to allowing the government to finance essential services for the population, it promotes the redistribution of income.

Thus, people with greater financial capacity contribute more, while low-income citizens pay less or are exempt.

Conclusion

Finally, the Income Tax ensures that Brazil functions, promoting development in priority areas such as health, education, security and social security.

Therefore, paying income tax represents an important contribution from each citizen to the country's growth and the well-being of the entire population.