President Luiz Inacio Lula da Silva of Brazil proposed a tax exemption for workers earning less than BRL5,000 monthly to enhance his popularity amid low approval ratings. The plan targets 13.4 million formal workers and aims to maintain fiscal neutrality by raising taxes on high-income individuals. If approved, the changes would benefit a vast majority of taxpayers, taking effect for the 2026 tax return.
Brazilian President Luiz Inacio Lula da Silva has announced a plan to exempt workers earning less than BRL5,000 (approximately $880) per month from income tax. This initiative fulfills a key campaign promise aimed at increasing his popularity, which currently stands at a low 24%. The tax reform bill, introduced in Congress on March 18, is expected to affect around 13.4 million formal workers, constituting 32% of Brazil’s workforce.
The initiative complements an existing tax exemption that benefits more than 10 million individuals with earnings below the current threshold of BRL2,824. President 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 estimated revenue loss of BRL26 billion (approximately $4.6 billion), the government plans to raise taxes on around 114,000 high-income Brazilians who earn above $105,000 annually.
This group represents just 0.06% of the population but is expected to generate BRL34.12 billion in revenue. The intention behind this measure is to garner support from middle-class voters, essential for bolstering Lula’s approval ratings. Lula remarked, “Now it’s worth it,” expressing optimism that Parliament would endorse the proposal to improve the financial well-being of Brazilian citizens.
The Brazilian tax system has been criticized for its regressive nature, where lower-income individuals bear a disproportionate tax burden relative to the wealthy. Currently, dividends received by shareholders are exempt from taxation. Under the new proposal, workers earning between BRL5,000 and BRL7,000 would also enjoy partial tax relief.
Despite concerns regarding the fiscal implications of a projected BRL8 billion ($1.4 billion) surplus from this reform, Treasury Executive Secretary Dario Durigan affirmed that the government seeks to maintain fiscal neutrality rather than pursuing a primary surplus. Lawmakers, including Chamber of Deputies Speaker Hugo Motta, have indicated potential modifications to the proposal ahead of its approval, which aims to exempt 90% of taxpayers fully or partially from income tax.
Finance Minister Fernando Haddad has maintained that the proposal is fiscally neutral, assuaging market fears regarding fiscal stability since the measure was first proposed. If this restructuring receives approval, it is expected to take effect with the 2026 tax return, right before the scheduled presidential elections later that year.
In summary, President Lula’s proposed tax reform aims to exempt low- and middle-income workers from income tax, enhancing his appeal amid declining popularity. By increasing taxes on a small percentage of high-income individuals, the government seeks to maintain fiscal neutrality while benefiting a significant portion of the population. The outcome of this proposal will be crucial for Brazil’s tax landscape and President Lula’s political future as the next presidential election approaches.
Original Source: www.intellinews.com
