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Tummy Tucks, Breast Implants Slice Brazil Income Tax

Adriana Pires, a human resources manager in Rio de Janeiro, had a pleasant surprise when she prepared her income taxes: the 8,000 reais ($4,575) she paid for breast implants and liposuction are tax-deductible.

As Brazilians race to meet today’s filing deadline, the federal government this year for the first time will allow taxpayers to deduct the cost of boob jobs, tummy tucks and any other type of cosmetic surgery. The measure, retroactive to procedures performed since 2004, may spur the 3 billion reais plastic surgery market, the world’s second-largest after the U.S., according to Brazil’s Plastic Surgery Society.

“It’s a medical expense like any other and it’s only fair to allow taxpayers to deduct it,” said Pires, 38, adding that she is considering a lipo touch-up this year because of the tax incentive. She had her first plastic surgeries in 2004.

The change in the tax code won’t have a material impact on tax collection, said Joaquim Adir, income tax coordinator at the revenue service in Brasilia. Brazil stepped up public spending amid falling revenue during the global financial crisis to sustain economic growth. The government’s budget deficit widened to 3.33 percent of gross domestic product last year, up from 1.9 percent in 2008. In March, the deficit widened to 17.1 billion reais, the worst result for that month since Dec. 2001, compared with a deficit of 13.3 billion reais in February, the central bank said today.

Booming Market

The government estimates federal revenue will rise to a record 646 billion reais this year as Latin America’s largest economy expands 5.2 percent, according to the 2010 budget estimate. Personal income tax, levied on individuals who earn more than 17,215.08 reais last year, represented 10 percent of federal revenue in 2009. Brazil’s revenue service expects 24 million taxpayers out of a 193 million population to file their taxes by the end of the day. The maximum tax rate is 27.5 percent.

Brazil’s revenue service reviewed its interpretation of the rules regarding plastic surgery because many taxpayers were already deducting payments for cosmetic surgery with their doctors’ consent, Adir said.

“This new interpretation came from internal discussions about what were considered reconstructive and non-reconstructive surgeries,” he said in a phone interview. “We concluded that cosmetic surgeries are also about health, physical and mental, and should be included in the list of deductible expenses.”

Sebastiao Guerra, president of the Plastic Surgery Society, said clearer rules may further boost cosmetic procedures already growing at a 30 percent annual rate.

Being Beautiful

Patients spent nearly 3 billion reais in over 864,000 cosmetic surgeries last year, according to the Sao Paulo-based Brazilian Plastic Surgery Society, or SBCP. That’s up from 2.6 billion reais in 2008.

In the U.S., where the Internal Revenue Service allows only reconstructive plastic surgery to be deducted, patients spent $6 billion on 1.5 million procedures last year, according to the Garden Grove, California-based American Society for Aesthetic Plastic Surgery.

Brazilians’ infatuation with beauty and rising disposable incomes as a result of a decade of low inflation and economic stability explain the surge in cosmetic procedures, Guerra, 66, said.

“Everybody wants to be beautiful,” said Guerra in a phone interview from the city of Belo Horizonte. “But plastic surgery isn’t just about vanity. In the majority of cases, there are psychological benefits too.”

Angered Groups

The new rules have angered groups representing the hearing- impaired and elderly, who also want tax relief for the purchase of items such as hearing aids and home care nursing.

“Tax-deductible lipo is absurd,” said Maria Ines Vieira, 52, coordinator of the deaf accessibility program at DERDIC, an education and rehabilitation institution that’s part of Sao Paulo’s Catholic University. “What will we seen next in Brazil? Tax-free Botox?”

Brazil has an estimated 2.8 million deaf residents, many of whom see hearing aids as an integral part of their own mental health, Vieira said.

“We don’t consider hearing aids because they are a product like glasses and don’t necessarily involve medical work or services rendered by doctors,” the revenue service’s Adir said.

Walking aids, orthopedic insoles and wheelchairs are deductible in Brazil, Adir said. So are dentures and orthodontic braces. Home nursing can be discounted if provided as part of hospital treatment, he said.

No Lost Revenue

Rogerio Gandra Martins, a tax lawyer at Sao Paulo’s Advocacia Gandra Martins, said the lost revenue represented by the deductions is more than compensated for by expanding payrolls and incomes that have pushed more Brazilians into higher income brackets in recent years.

Although there are no limits for the amount taxpayers can deduct for medical expenses in Brazil, the list of eligible items is much smaller than it is in the U.S., he said.

“If there’s some kind of loss to tax collections because of this measure, it will be small,” Martins, 40, said in a phone interview from Sao Paulo.

Pires said she feels no remorse for deducting the cost of her surgery.

“We Brazilians are already taxed too much,” she said.

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