President Luiz Inacio Lula da Silva proposes to exempt workers earning less than BRL5,000 from income tax, affecting 13.4 million workers. This fiscally neutral reform intends to boost his popularity among middle-class voters while increasing taxes on high earners to offset revenue loss. If enacted, the new tax structure would be effective for the 2026 tax return.
Brazilian President Luiz Inacio Lula da Silva has announced a plan to exempt workers earning less than BRL5,000 ($880) monthly from income tax, addressing a vital promise amid his low approval rates. The tax reform, introduced to Congress on March 18, aims to support approximately 13.4 million formal workers, constituting 32% of Brazil’s workforce, as per data from the Finance Ministry.
In addition to this proposed exemption, over 10 million individuals already qualify for tax exemption under the current income threshold of BRL2,824. Lula emphasized the initiative’s neutrality, stating, “This is a neutral project. It won’t increase the country’s tax burden by a cent. What we’re doing is just making amends.” The government anticipates a revenue loss of BRL26 billion ($4.6 billion) due to the reform.
To counterbalance this loss, the administration plans to increase taxes on roughly 114,000 high-income Brazilians, who account for merely 0.06% of the population and earn more than $105,000 annually, with an expected revenue generation of BRL34.12 billion. Given his current approval rating of about 24%, the president aims to enhance his appeal among middle-class voters through this measure, remarking, “Now it’s worth it,” and expressing confidence in Parliament’s support to improve the lives of ordinary Brazilians.
Brazil’s tax system is characterized by regressive elements where lower-income citizens disproportionately bear a heavier tax load compared to wealthier individuals. Additionally, corporate dividends currently remain tax-exempt. As part of the reform, workers earning between BRL5,000 and BRL7,000 would receive partial tax discounts, although concerns about the projected budget surplus of BRL8 billion ($1.4 billion) prompt scrutiny regarding the true fiscal motivations behind the proposal.
Treasury Executive Secretary Dario Durigan clarified that the government does not aim for a primary surplus through this initiative but rather strives for fiscal neutrality. However, the Speaker of the Chamber of Deputies, Hugo Motta, suggested that lawmakers may alter the proposal prior to its approval. Should it pass without significant amendments, around 90% of taxpayers would be exempt from income tax in full or part. Finance Minister Fernando Haddad has maintained that the proposal is fiscally neutral despite market concerns regarding its potential fiscal implications.
If ratified within this year, the revised tax framework would take effect for the 2026 tax return, coinciding with Brazil’s presidential election scheduled for the same year.
In summary, President Lula’s proposed tax reform intends to alleviate the financial burden on middle-class workers while maintaining fiscal neutrality. This initiative represents a strategic effort to enhance his popularity ahead of upcoming elections. By shifting more of the tax burden onto high-income earners, the government hopes to address longstanding inequities in Brazil’s tax structure, thereby potentially benefiting a significant portion of the population.
Original Source: www.intellinews.com
