By Marcela Ayres
BRASILIA, April 16 (Reuters) - Brazil's new tax on dividends has raised only a fraction of the revenue expected this year, according to unpublished tax data reviewed by Reuters, raising doubts about whether it can pay for President Luiz Inacio Lula da Silva's flagship policy to widen tax exemptions for lower-income Brazilians in 2026.
This year, the administration of the leftist leader started charging a 10% withholding tax on dividends that are higher than 50,000 reais ($10,015) paid
by companies to individuals, as well as on all dividend remittances abroad.
The government's economic team said for months that its plan to expand tax exemptions would be fiscally neutral. But, in January and February, the levy on domestic dividend payments raised 121.7 million reais, while the tax on dividends sent overseas generated 35.2 million reais, Brazil's federal tax revenue service told Reuters.
Both figures amount to less than 1% of the revenue the government projected for the full year of 2026 when it designed the income tax reform, one of Lula's biggest bets to court middle-class voters as he seeks reelection in October.
The government estimated it would collect 23.8 billion reais from domestic withholding tax this year, and 6.2 billion reais from remittances abroad.
Two government officials, speaking on condition of anonymity, said the amounts raised so far were disappointingly low.
Former tax chief Marcos Cintra said many companies had accelerated dividend distributions last year to avoid the new levy.
"Results are likely to fall short of projections for the entire year," he added.
The tax authority said it stood by its combined revenue forecast of 30 billion reais from the dividend taxes, meant to compensate for an estimated 28 billion reais loss from expanding the income tax exemption for those earning up to 5,000 reais per month.
It stressed that dividend payments are uneven throughout the year.
Under the approved reform, the government also created a minimum tax for high earners, with progressive rates of up to 10% on annual income above 600,000 reais. But that measure will not generate revenue this year, because it will only be collected through tax filings in 2027 based on 2026 income.
As a result, the cost of expanding income tax exemptions in 2026 will have to be fully offset by the new withholding tax on dividends.
REMITTANCES
The modest revenue from taxing dividends sent abroad contrasts with central bank data showing that $4.8 billion in dividends - about 25 billion reais - were remitted overseas in the first two months of the year, based on foreign exchange contracts confirming those payments.
Those figures exclude reinvested profits, which remain in Brazil, but do not specify the nature of the proceeds, which could include dividends or interest on equity (JCP).
The tax revenue service said that it was natural to see dividend payments both domestically and abroad without withholding in the early months of the regime, because dividends linked to results from 2025 or earlier are not subject to the tax, even if distributed this year.
While it is clear that the funds left the country in January and February, it is not possible to determine how much of that total was booked from January this year onward.
Large companies also tend to distribute dividends once or twice a year rather than in regular monthly payments, the agency added.
"For these reasons, using only revenue data from January and February, it is impossible to assess whether collections from dividend distributions are falling short of expectations," it said.
($1 = 4.9925 reais)
(Reporting by Marcela Ayres, Editing by Franklin Paul)
