Featured

What is Corporate Income Tax and what is its meaning?

The acronym IRPJ refers to the Corporate Income Tax and is one of the taxes that are paid in the country. However, as the name itself says, this statement must be made by companies.

Companies must declare income tax of all sizes, including individual companies.

And in the midst of so many taxes, the businessman may feel confused. Thus, we will explain here a little more about the IRPJ.

IRPJ is calculated according to the type of taxable profit of the company.

What is Corporate Income Tax (IRPJ)?

As already seen, corporate income tax is the tax due from companies. It is one of the main sources of revenue of the federal government, which must reverse the income obtained in the needs and development of the country.

Who should declare the IRPJ?

Who should declare the IRPJ?

All companies must declare this tax, including individual and non-formal.

Is any company exempt from filing and paying IRPJ?

They are exempt from paying the IRPJ non-profit corporations and philanthropic entities. It also has exemption some cultural, recreational and scientific institutions.

When should I pay for my company’s IRPJ?

Unlike the Individual Income Tax, the IRPJ must be paid on a quarterly basis. Generally, the payment must be made in the last days of the months of March, June and December.

Already companies that fit the category of Real Income can make the payment of the tax every month.

How is IRPJ calculated?

The IRPJ is calculated according to the model of taxation that the company has.

What are the types of business taxation?

Basically, companies, depending on the type of taxable income, are classified into three types: Simple, Real Profit and Presumed Profit.

Simple

They are companies whose taxable profits are simple and, in this case, the tax is already discounted in the own tax guide (municipal, state and federal). Thus, it is not necessary to fill out extensive data guides for declaration.

The amount of tax due, in these cases, varies according to the company’s billing.

Simulate a Low-Interest Loan!

Compare rates for more than 20 banks for your loan. Escape high-interest rates and get the loan with the best rate for you!

Simulate

Presumed profit

Here are companies that have estimated taxable profit. These should consult a government table of percentage profit estimates – depending on the segment in which the establishment operates.

Also a tax rate on the profit of, generally, 15% is levied.

These data will serve as a tax rate for the calculation of IRPJ of these companies.

To facilitate understanding, let’s take an example:

One company had a quarterly turnover of R $ 15 thousand. According to the table, the presumed profit is 10% – the equivalent of R $ 1,500.

At a rate of 15%, the amount to be paid IRPJ tax will be R $ 225 quarterly.

But attention. If a company’s billing exceeds R $ 20,000, the tax due may add an additional 10% additional rate.

Real profit

It follows the same rule as the companies of the Assumed Profit category. Profit is taxed at a rate of 15%.

The amount obtained must be paid quarterly to the Internal Revenue Service.

I’m late with the IRPJ. How to proceed?

Now that you already know all about IRPJ, it is even more important to know that a company should never be liable for the late tax payment.

If you have not paid your company’s IRPJ, try to do so as soon as possible. Delaying company taxes entail interest and fine.

In addition, if any portions of the tax are in arrears, the company will be prevented from carrying out various transactions and may even have its activities closed – until the debts are settled.

Corporate income taxes are most often reformed by France and Italy

A key problem in tax surveys is that quantitative information is often only available for tax rates and not for the tax base. 

Laura Kawano and Joel B. Slemrod published an important article in 2016, in which they criticize earlier studies assessing the Laffer curve for corporate income tax (Kawano and Slemrod 2016). These studies usually indicated stronger regression of corporate tax revenues than in enterprises. However, Kawano and Slemrod have shown that these studies ignore information about the fundamentals of corporate taxation – which are systematically changing with rates.

The work of Kawano and Slemroda illustrates a key problem in tax studies, namely the fact that quantitative information is often only available in relation to tax rates and not to the tax base. To address this weakness, alternative tax indicators, such as completed tax payments, were used in the research to measure the combined effect of tax rates and tax bases. For example, in taxation and economic growth studies, the tax-to-GDP ratio was generally used as an independent variable for measuring tax burdens. However, the interpretation of such a relation must also take into account changes in GDP.

To address these methodological issues, the IMF developed a new database on tax policy reforms (TPRD), which was made publicly available for research in April 2018. It uses text analysis techniques to extract detailed information about previous tax policy reforms. in 23 countries over four decades, based on over 900 OECD reports and 37 thousand press cuts from the International Bureau of Fiscal Documentation (IBFD). The TPRD report’s information on changes in the tax rate and tax base, the dates of the announcement and implementation of reforms, whether the measures are implemented over many years or not, whether the reforms were large or small, or implemented as part of the fiscal consolidation package.

The TPRD database can be used to draw conclusions about systematic trends in taxation and for comparative analysis of individual countries. For example, it shows that 23 countries covered by the study have implemented on average 130 tax reforms over the past few decades, mainly in personal income tax and corporate income tax systems. At the top of the list were France and Italy with more than 200 reforms, while the smallest number – less than 50 reforms – was recorded in Brazil and the Czech Republic. Most reforms regarding personal income tax and corporate income tax were changes in the tax base. In contrast, in the case of value-added tax (VAT), most of the reforms were changes in the tax rate. The average delay between the announcement and the implementation of the reform was 150 days, but there was a wide variation. Interestingly, contrary to popular belief, the reduction of corporate tax rates in the recent period was associated with a simultaneous narrowing of the tax base of legal entities. Amaglobeli and others (2018) give more detailed information on the subject in their work.

Solving methodological problems 
The TPRD database can also be used to solve some of the methodological problems found in previous tax studies and allows researchers to analyze new issues. Here are some examples. Initially, taxation and growth.

First of all, the TPRD database contains information on whether tax reforms were implemented during the fiscal consolidation period (there is a higher probability that the tax reform will not be related to the business cycle). This allows circumvention of endogeneity problems and therefore gives a higher probability of obtaining unweighted estimates.

Secondly, the TPRD database distinguishes not only individual categories of taxes but also distinguishes between the change of the tax rate and the change in the tax base. The latter turns out to be significant (Dabla-Norris and Lima 2018). Tax rate increases are associated with significantly larger negative effects on long-term growth (both production and employment) than reforms expanding the tax base. What’s more, short-term tax multipliers turn out to be much higher if they result from changes in tax rates than in the case of changes in tax bases.

The TPRD database also allows you to enrich the analysis in the field of tax competition. As shown in his work, Hebous et al. (2018):

– by analyzing how countries react to the announcements and implementation of reforms;

– by analyzing the effects of changes in the tax base;

– by examining whether countries are also competing with each other by means of their tax bases.

The TPRD databases are also used to look for answers to many other tax issues, some of which are currently being investigated by IMF employees. For example, it is planned to look at the political economy of tax reforms: how do tax reforms affect elections and whether elections influence the announcement, implementation, and reversal of reforms? It also analyzes whether individual tax reforms have different implications than tax reform packages, and also look at the specific effects of tax reforms during economic crises.