February 1, 2023

Haddad wants to comb through health deductions, which add up to R$92.1 billion, but the task is complex.

BRASILIA – Finance Minister Fernando Haddad wants to make a fine comb on healthy deductions from the individual income tax (IRPF) to curb what he describes as excesses. With no restrictions on this type of deduction, the Minister asked to verify the information that even cosmetic treatments performed abroad are included in this quota.

Experts say the revision is important, but what would be appropriate would be a rewrite of the rules of international relations and that the discussion is more complex than it appears.

The National Federation’s calculations indicate that for the 2020 calendar year, deductions for health expenditures in income tax totaled R$92.1 billion. In fact, the current legislation does not provide for determining the value of this type of deduction, although it establishes some rules. Haddad’s questioning also included a moral component.

The first step is to comb out the offense. Every time you don’t have a deductible cap, you don’t have a deductible cap, you limit the abuse. This is unimportant in general proportion, but morally it is important to curb it. From an ethical point of view, you need to close this kind of taps, because when something like this appears, it is not good to see that someone who went for aesthetic treatment abroad deducts it from income tax – he said in an interview with the Brasil 247 portal.

Haddad did not detail how fine this comb would be, but he said – also referring to the review of the Bolsa Família cadastral – that it is necessary to review everything before cutting anything.

“We will sort things out and then discuss with Congress, as part of the reform, what is fairer to make the tax system more progressive,” he said.

An extensive revision of the discounts to make the system more advanced is essential, in the assessment of Tiago Barbosa, senior vice president of Sindifisco National. This involves a complete reformulation of the IR for individuals, with a change in the scope of the exemption and the rates in the schedule, so that people with higher incomes pay proportionately more.

– The federation realizes that it needs a general review of the discounts in order for the system to become more advanced. Now, saying what the deduction limit for medical expenses should be or whether or not you should stay is something that’s hard to pin down an answer to, it has to be in the context of redesigning the income tax. There are exceptions to our legislation, such as dividends and dividends, and this should be reconsidered – assessed.

Igor Mueller-Santiago, co-founder of Mauler Advogados, explains that the debate about capping health deductions runs against a constitutional component:

– Imposing quantitative limits on deducting health expenses would harm the taxpayer, and more than that, it is unconstitutional, because income is what remains of basic expenses for a decent life for the taxpayer.

He says OAB itself has already filed a direct case of unconstitutionality in the Federal Supreme Court (STF) to overturn the limit on the deduction of education expenses. Currently, there is a limit on deductible education expenses, set at R$3,561.50 per year for the holder and each dependent.

Guilherme Peloso Araujo, partner tax attorney at Carvalho Borges Araujo Advogados, also points out the risk of unconstitutional change:

– The legislative decision, if this happens, will have the effect of violating the constitutional concept of income as well as the constitutional principle of ability to pay, and requiring taxpayers to pay tax on their gross income, and not on their disposable income.

María Carolina Sampaio, Head of Tax Area and Partner at GVM Advogados, however, understands that the lack of limits on health deductions creates a ‘market’ for receipts, but she considers that the solution is inspection:

– Because there is no deduction limit, in fact, many people make unnecessary deductions, and there is also a “medical receipt market”. But imposing a limit, as many suggest, does not correct this problem, it only hurts those who already have a high healthcare cost. The solution, in fact, is the inspection, which is already done in a very efficient way.

There is currently no limit for the medical expense deduction on an IR. Attorney Bruno Minoru Takai, Partner in the Tax District of Diamantino Advogados Associados, explains that it’s not just medical expenses that are deducted.

The legislation allows deductions for expenses paid to health professionals (doctors, dentists, psychologists, physiotherapists, speech therapists, and occupational therapists), hospital and laboratory test expenses, radiological services, orthotics, prosthetics (orthotics, dental), and insurance costs.

He also says there is an intersection of accountability for health workers, revenue and businesses:

All health professionals and companies established in Brazil must submit a DMED annually to the Federal Revenue Service. This document should contain all information about the services provided during the analyzed period. It is based on this document, by automatically traversing information, that Revenue keeps most IR taxpayers in the “fine grid.”

In the case of payments for treatment abroad, Haddad reported, the legislation allows deductions for expenses. But, in this case, there is no way to compare the information provided by the payer and the service provider, but if the tax auditor identifies any wrongdoing, he must call the person to provide evidence.

In terms of aesthetic procedures, expenses with dermatologists, for example, are deductible. The Federal Revenue Service understands that silicone prosthesis placement, for example, can also be deducted as long as it is already included in the bill issued by the hospital or doctor.

– For other aesthetic interventions, it will be deducted if their purpose is to prevent, maintain or restore the patient’s physical or mental health. The criterion is completely subjective, which leaves room for interpretation by the tax auditor – explains Taqi.