In a decision directly impacting Brazilian retirees and pensioners residing abroad, Brazil’s Supreme Federal Court (STF) ruled the fixed 25% withholding tax (IRRF) on their income as unconstitutional, noting that it disregards the income brackets of these taxpayers.
The STF based its decision on constitutional principles such as equality and tax progressivity, emphasizing the need for fairer taxation that considers each citizen’s contributive capacity. This analysis challenges the logic of a fixed rate for all income levels and sparks a new debate on tax fairness, especially regarding the disproportionate tax burden on retirees abroad who do not benefit from Brazilian public services.
During the ruling, several concerns were raised about the validity of this taxation. Among the critiques were the lack of a reasonable basis for a flat rate and the disproportionate tax burden on residents abroad. Justice Dias Toffoli argued that the measure violated constitutional principles of progressivity, non-confiscation, and equality, a stance supported by other justices. Although Justice Flavio Dino agreed with the decision, he proposed new legislation for progressive taxation, whereby tax rates increase in line with the taxpayer’s income.
The case involved a retiree residing in Portugal who receives a minimum wage and challenged the 25% withholding tax. The Court recognized the unconstitutionality of the fixed rate, arguing it violated the tax equality principle, creating fiscal inequality between Brazilians residing domestically and abroad. Consequently, the Court mandated the application of progressive rates as per Law 11.482/2007
The STF’s decision not only underscores the importance of constitutional principles in taxation but also highlights the urgent need to reform fiscal policies for Brazilians abroad. By declaring the fixed 25% rate unconstitutional, a pathway opens for Congress to develop fairer, progressive legislation that considers the financial circumstances of retirees and pensioners.
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Published on November 11, 2024