Brazil’s government has proposed an income tax exemption for individuals earning up to 5,000 reais monthly, funded by new taxes on high earners and profits abroad. This initiative is a key strategy for President Lula to increase his popularity amidst declining ratings.
On Tuesday, Brazil’s government presented a new income tax exemption plan aimed at individuals earning up to 5,000 reais ($881.27) monthly. This initiative is intended to be financed through increased taxes on high-income earners and on profits and dividends sent abroad. This proposal is part of President Luiz Inacio Lula da Silva’s efforts to bolster his popularity amid dwindling approval ratings, having previously faced market backlash due to fiscal concerns.
The administration has assured that the proposal will maintain fiscal neutrality, a point emphasized by President Lula at a recent event stressing the intention to promote tax justice. The bill, which must receive congressional approval to commence in 2026, incorporates a 10% withholding tax on profits and dividends distributed internationally. The government anticipates that this initiative will generate an additional 8.9 billion reais annually.
Additionally, there is a plan to implement a minimum effective tax for high-income individuals earning above 600,000 reais annually. The tax rate will progressively increase, reaching 10% for incomes exceeding 1.2 million reais per year, and is projected to yield an extra 25.22 billion reais each year. Finance Minister Fernando Haddad has described the bill as “balanced” financially; however, the projected impact of the tax exemptions is expected to reach 25.84 billion reais in the next year, which will be less than the anticipated revenue increase.
Currently, individuals with monthly earnings of up to 2,824 reais are exempt from income taxes. The new plan signifies a noteworthy shift in Brazil’s tax policy, reflecting the government’s strategic response to challenging economic conditions and aiming to promote equity among the population in the taxation system.
In summary, Brazil’s new income tax exemption plan is designed to alleviate the tax burden on lower-income individuals while ensuring that high earners contribute more through increased taxation. This initiative marks a pivotal move by President Lula’s administration to enhance fiscal equity and restore public confidence, notwithstanding initial market concerns regarding its financial implications.
Original Source: money.usnews.com
