President Lula has introduced a tax reform plan exempting workers earning below BRL5,000 from income tax, benefiting 13.4 million people. To offset BRL26 billion in revenue loss, taxes on the wealthiest 114,000 individuals will increase. This measure aims to improve Lula’s low approval ratings, with potential approval affecting the 2026 tax return.
Brazilian President Luiz Inacio Lula da Silva has announced a tax reform plan aimed at exempting workers with monthly earnings below BRL5,000 ($880) from income tax. This initiative fulfills a critical campaign promise and addresses his current low approval ratings, which stand at approximately 24%. The proposal was presented to Congress on March 18, impacting an estimated 13.4 million formal workers, or 32% of Brazil’s labor force, as reported by the Finance Ministry.
The reform builds on an existing tax exemption for over 10 million workers under the current threshold of BRL2,824. Lula emphasized that the plan is neutral, aiming not to increase the overall tax burden. “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,” he stated during the announcement in Brasilia.
To compensate for an estimated BRL26 billion ($4.6 billion) revenue loss from the tax exemptions, the government plans to raise taxes on approximately 114,000 high-income individuals earning over $105,000 annually. This group represents only 0.06% of the population but could generate BRL34.12 billion, according to the cabinet.
The tax system in Brazil is notably regressive, where lower-income citizens bear a higher proportional tax burden than wealthier citizens. Currently, dividends paid to shareholders are tax-exempt. Under Lula’s proposal, workers earning between BRL5,000 and BRL7,000 would also receive partial tax discounts to alleviate the financial pressure on middle-class earners.
Despite projections suggesting a surplus of BRL8 billion ($1.4 billion) from the proposal, Treasury Executive Secretary Dario Durigan clarified that the government is not aiming for a primary surplus with these changes. He reiterated the commitment to fiscal neutrality. Legislative leader Hugo Motta indicated potential modifications to the proposal by lawmakers prior to approval.
Should these changes pass without significant amendments, approximately 90% of taxpayers would enjoy full or partial tax exemptions. Finance Minister Fernando Haddad has maintained that the tax reform is fiscally neutral, despite market worries regarding fiscal stability. If approved, the new tax structure might be implemented for the 2026 tax return, just before Brazil’s next presidential election.
In summary, President Lula’s proposed income tax cuts are designed to exempt lower-income Brazilians from taxation and improve his public support amid declining approval ratings. The offsetting measures targeting high-income earners aim to maintain fiscal balance, ensuring the reform does not exacerbate Brazil’s economic challenges. If passed, the plan could significantly alter the tax burden landscape for many Brazilians, particularly within the middle class.
Original Source: www.intellinews.com
