Brazil’s Finance Minister Lowers Estimated Costs of Tax Exemption Proposal

Brazil’s finance minister revised the projected cost of the income tax exemption proposal to 27 billion reais ($4.75 billion) annually, lower than the initial 35 billion. The exemption would raise the income limit for tax-free earnings starting in 2026, while aiming to offset fiscal effects through increased taxation on the wealthiest. Discussions will continue with congressional leaders regarding the proposal.

Brazil’s Finance Minister, Fernando Haddad, announced a revised estimate for the cost of the proposed income tax exemption, projecting it will be 27 billion reais (approximately $4.75 billion) annually. This figure is significantly lower than the earlier estimate of 35 billion reais and reflects adjustments made concerning the tax table for this year.

President Luiz Inacio Lula da Silva’s proposal aims to raise the income range exempt from taxes for individuals earning between 2,824 reais and 5,000 reais per month, effective from 2026. This initiative must be approved by Congress and caused considerable market fluctuations upon its introduction alongside efforts to reduce government spending.

With an increase in the minimum wage from 1,412 reais to 1,518 reais this year, the government plans to retain the exemption for those earning up to double the minimum wage in 2025, before implementing the higher threshold in 2026. Minister Haddad previously stated that the fiscal implications of the tax exemption would be mitigated by compensatory measures, such as increased taxes on high-income earners.

Additionally, Minister Haddad confirmed that President Lula will convene with leaders of the Senate and the lower house on Tuesday to further discuss the exemption proposal, which is anticipated to be presented to lawmakers on the same day.

In conclusion, the Brazilian government’s proposed income tax exemption is now estimated to cost 27 billion reais annually, down from 35 billion. The reform aims to relieve tax burdens for middle-income earners while balancing fiscal impacts through increased taxation on the wealthy. The proposal is set to undergo legislative review imminently, marking a significant step in Brazil’s fiscal policy agenda.

Original Source: www.marketscreener.com