Wealth tax is applied in different countries around the world. In Brazil, there has been an attempt to institute a scheme for wealth tax since the 1988 Constitution, but so far, it hasn’t even been regulated.
Imposto sobre Grandes Fortunas abbreviated to IGF can be directly translated to Tax on Large Fortunes. The IGF was established by the 1988 Constitution but has never been regulated and enforced. Each time it is discussed in the Senate, it creates a polemic involving its usefulness and the proposals are always rejected.
The Brazilian idea of a wealth tax was highly influenced by the French system. In 1981, France’s National Assembly approved the Impôt sur les Grandes Fortunes, but it was abolished in 1986, when the conservatives achieved the majority of votes in the French Parliament. however, in 1988, when the socialists won the Legislative election, the tax was recreated under the name of Impôt Solidarité sur La Fortune.
The debate in Brazil
When it comes to questioning the constitutionality of the law, there is a debate involving the definition of the term “large fortune”. There is doubt whether the fortune should exceed a determined value or the wealthiness of a fraction of the richest people of the country. A common reasoning between jurists in Brazil is that “fortune is larger than wealthiness, and a large fortune is larger than a fortune”. This would implicate that the IGF is a tax that would only apply to a very small number of contributors.
Debates in Brazil can be simplified into two camps. The camp against IGF will argue that tax on wealth is a punishment for being rich and if understood literally there would not be a significant contribution for the overall tax collection of the country as the tax would only apply to a very small number of contributors.
The camp that supports the idea of a wealth tax will claim that it is not a punishment for the rich, but a way of making the wealth contributors provide a larger contribution to the overall tax collection and consequently reduce social inequality.
In order to regulate IGF, there have been many projects of complementary law in the Chamber of Deputies and in the Senate since 1989. The first attempt was made by the senator Fernando Henrique Cardoso, who went on to become Brazil’s president in 1995. His law project was approved and sent to the Senate, where other deputies’ projects for the IGF were appended. None of the law projects presented were approved and the debate over IGF was forgotten for a while, returning in 2000 – and yet again it was rejected.
After the rejection in 2000, the subject has since been discussed three times during the last five years: in 2008, 2010 and 2012. All the law projects since 1989 were similar to each other, the differences being the minimum and maximum values that the law would cover and the tax rates. In none of the attempts of regulation, however, was the complementary law accepted, not even in the most recent ones.
Among the reasons given for the rejection were the difficulties and the costs of instituting such a tax, taking into account the decision that some developed countries such as the United States, the United Kingdom and Australia made about the tax. These countries, plus Italy and Japan, opted to not charge the tax on large fortunes because of the high administrative costs and the low participation in the collection. The main source of collection in developed countries is income tax.
There are a lot of political and administrative challenges for the governments that institute taxes on wealth. To escape from the progressive nature of the tax, contributors can create legal entities or spread their patrimonies between members of the contributors family. Such attempts to avoid the payment show that it is necessary to have a register of each family member that contributes. It is also important to have a system which is able to evaluate the assets and compare them to the values that have been declared.