Brazil’s Lula proposes income tax exemptions for workers earning under BRL5,000 monthly, benefiting 13.4 million workers. To offset BRL26bn revenue loss, taxes on high earners will increase. Lula aims to improve his 24% approval rating among middle-class voters. The proposal addresses Brazil’s regressive tax system, with plans for partial discounts for some workers. The new structure would take effect for 2026 tax returns if approved.
Brazilian President Luiz Inacio Lula da Silva has announced an initiative to exempt workers earning less than BRL5,000 ($880) per month from income tax, fulfilling a pivotal campaign promise amid low approval ratings. The tax reform bill, unveiled to Congress on March 18, is expected to assist around 13.4 million formal workers, which constitutes 32% of Brazil’s workforce, according to the Finance Ministry.
This proposal builds upon an existing tax exemption that already benefits more than 10 million individuals currently exempt under the threshold of BRL2,824. During the announcement in Brasilia, Lula stated, “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.”
To counterbalance the anticipated revenue loss of BRL26 billion ($4.6 billion), the government plans to increase taxes on approximately 114,000 high-earning Brazilians who make over $105,000 annually, representing 0.06% of the population. This adjustment aims to produce an estimated BRL34.12 billion in revenue.
With his popularity currently at 24%—the lowest rate across his three presidential terms—Lula aims to win the favor of middle-class voters through this measure. He asserted, “Now it’s worth it,” expressing confidence that Parliament would endorse the proposal to enhance the financial well-being of the Brazilian populace.
Brazil’s tax system is noted for being regressive, where lower-income citizens disproportionately bear the tax burden. Furthermore, dividends paid to shareholders by corporations are currently exempt from taxation.
Under the new proposal, additional benefits would apply to workers earning between BRL5,000 and BRL7,000, providing them with partial tax discounts. While a report by O Globo has questioned the fiscal motivations due to a projected BRL8 billion ($1.4 billion) surplus, Treasury Executive Secretary Dario Durigan emphasized that the government is “not seeking a primary surplus with this measure” but aims to maintain fiscal neutrality.
Chamber of Deputies Speaker Hugo Motta suggested that lawmakers are likely to amend the proposal before its final approval. Should it pass without significant alterations, it would result in 90% of taxpayers being fully or partially exempt from income tax.
Finance Minister Fernando Haddad has maintained that the plan is “fiscally neutral,” even as markets expressed worries about potential fiscal instability when the measure was first introduced last November. If enacted this year, the adjusted tax structure will come into effect for the 2026 tax return, shortly before the presidential election slated for that year.
In summary, President Lula’s proposed income tax reform aims to alleviate the financial burdens on lower-income workers while increasing taxes on the wealthiest individuals. This initiative is part of a strategy to boost his waning popularity among middle-class voters. Despite concerns regarding fiscal implications, government officials assert that the proposal maintains neutrality, aiming to improve the socio-economic conditions for a significant portion of Brazil’s population.
Original Source: www.intellinews.com
