Brazil has announced a plan to exempt individuals earning below 5,000 reais from income tax, aiming to regain popularity for President Lula. The revenue shortfall will be addressed through taxes on high earners and foreign profits. The proposal is seen as fiscally neutral, but it requires Congressional approval to take effect in 2026.
Brazil has introduced a plan to exempt individuals earning up to 5,000 reais ($881.27) per month from income tax. This initiative aims to gain popularity for President Luiz Inacio Lula da Silva, who faces declining approval ratings. To offset the revenue loss, the government plans to levy taxes on high earners, along with profits and dividends sent abroad.
The administration asserts that the tax reform will be fiscally neutral. President Lula emphasized this intent at a recent event, stating the move promotes tax justice. The bill requires Congressional approval this year to be implemented in 2026.
A 10% withholding tax will be imposed on profits and dividends sent overseas, which could generate an additional 8.9 billion reais annually. Furthermore, a minimum effective tax on high earners will affect those with earnings over 600,000 reais, escalating to a 10% tax on incomes above 1.2 million reais, potentially increasing revenues by 25.22 billion reais.
Finance Minister Fernando Haddad described the bill as balanced. Even so, tax exemptions are expected to result in a 25.84 billion reais impact next year, a figure that is less than the anticipated total revenue gains. Currently, the income tax exemption threshold stands at 2,824 reais per month.
The new income tax exemption plan aims to support individuals earning below 5,000 reais while increasing revenue from high earners and profits abroad. With Congressional approval needed for implementation in 2026, the balance between tax exemptions and new levies will be critical to maintaining fiscal neutrality. The measured revenue increases could play a vital role in restoring President Lula’s popularity amid economic challenges.
Original Source: money.usnews.com
