Brazil’s government has proposed a plan to exempt individuals earning up to 5,000 reais from income tax, financing the revenue gap with new taxes on high earners and overseas profits. The initiative is part of President Lula’s strategy to regain public support, emphasizing fiscal neutrality and tax justice amid concerns about its effects on federal revenues.
On Tuesday, Brazil’s government introduced an income tax exemption plan for individuals earning up to 5,000 reais ($881.27) per month. This initiative aims to cover the resulting revenue loss through new taxes on higher-income individuals and profits and dividends sent abroad. President Luiz Inacio Lula da Silva views this plan as essential for enhancing his popularity as his approval ratings have declined.
The Lula administration has assured that these tax reforms would maintain fiscal neutrality, supported by President Lula’s remarks at a recent event highlighting the pursuit of tax equity. A bill, which must be passed by Congress this year to be implemented by 2026, proposes a 10% withholding tax on profits and dividends transferred overseas, potentially generating 8.9 billion reais in annual revenue.
Moreover, the government intends to establish a minimum effective tax for high-income earners, targeting individuals with annual earnings exceeding 600,000 reais. This new tax structure would progressively increase, reaching 10% for those earning more than 1.2 million reais annually, expected to raise roughly 25.22 billion reais each year.
Finance Minister Fernando Haddad characterized the proposal as “balanced” from a fiscal perspective, despite approximations indicating that the tax exemptions would exceed revenue gains, impacting around 25.84 billion reais next year. Presently, individuals earning up to 2,824 reais monthly are exempt from income tax, signaling a significant raise in thresholds under the new proposal.
The newly proposed income tax exemption for Brazilians earning below 5,000 reais monthly aims to enhance tax equity and improve President Lula’s popularity amid declining support. The proposal’s fiscal balance relies on increased taxation for high earners and projected revenue from taxes on overseas dividends, though concerns remain regarding potential revenue deficits due to exemptions.
Original Source: money.usnews.com
