Brazil’s Income Tax Exemption Proposal: A Strategy for Popularity Restoration

Brazil unveiled a plan to exempt individuals earning up to 5,000 reais from income tax, funded by taxing high earners and overseas profits. This effort aims to regain President Lula’s popularity. The proposal includes a 10% withholding tax on profit remittances and a minimum tax on high-income earners. Approval from Congress is required for the bill to take effect in 2026.

The Brazilian government has announced a plan to exempt individuals earning up to 5,000 reais (approximately $881.27) per month from income tax. This initiative is intended to be funded by imposing new taxes on higher earners and on profits and dividends remitted abroad. It reflects President Luiz Inacio Lula da Silva’s strategy to increase his popularity amid declining approval ratings.

Initially introduced last year, this proposal faced market skepticism due to concerns about its fiscal implications. President Lula emphasized the government’s intention to maintain fiscal neutrality while pursuing tax justice. Furthermore, a withholding tax of 10% on profits and dividends sent overseas is part of the bill, expected to generate an estimated 8.9 billion reais annually.

The plan also aims to impose a minimum effective tax on high-income earners with annual earnings exceeding 600,000 reais. The tax rate would gradually escalate, maxing out at 10% for those earning over 1.2 million reais per year, which could potentially raise 25.22 billion reais annually. Finance Minister Fernando Haddad assured that the bill would remain balanced concerning fiscal policy.

Currently, individuals earning 2,824 reais or less per month are exempt from income tax. The proposal must undergo congressional approval to be enacted by 2026, and its projected tax exemptions for next year amount to 25.84 billion reais, which remains less than the anticipated revenue increases.

Brazil’s newly introduced income tax exemption plan aims to alleviate the tax burden on lower-income citizens while increasing taxation on high earners and overseas profits. This legislative initiative serves as a key component in President Lula’s effort to boost his popularity. The proposal’s passage is contingent upon congressional approval, aligning fiscal goals with social equity.

Original Source: money.usnews.com