Brazil Unveils Tax Overhaul to Exempt Lower Incomes Amid Fiscal Concerns

Brazil introduced a plan exempting earners of up to 5,000 reais monthly from income tax, offset by new taxes on high earners and overseas revenue. President Lula's proposal aims for fiscal neutrality while promoting tax fairness. The bill needs Congress approval by 2026 to implement.

On Tuesday, Brazil's government revealed a strategic tax plan aimed at exempting individuals earning up to 5,000 reais per month from income tax. This initiative, long in the making, intends to bridge the revenue gap through the introduction of new taxes on high earners and profits sent abroad.

This proposal is a critical component of President Luiz Inacio Lula da Silva's efforts to restore his waning popularity amid slipping approval ratings. The administration assures that the plan will remain fiscally neutral. At an event, President Lula emphasized the goal of tax justice, with the bill potentially taking full effect in 2026, pending Congressional approval.

The government estimates that this measure could raise revenues by approximately 34 billion reais per year. The introduction of a graduated tax rate affecting high-income individuals is expected, alongside the 10% tax on overseas profits. Despite its potential, the proposal initially generated market apprehension due to fiscal concerns.

(With inputs from agencies.)