Brazil unveils broader income tax exemption plan as Lula seeks to regain popularity

Marcela Ayres and Lisandra Paraguassu

Tue, Mar 18, 2025, 10:09 AM 2 min read

By Marcela Ayres and Lisandra Paraguassu

BRASILIA (Reuters) - Brazil's government on Tuesday unveiled a long-promised plan to exempt individuals earning up to 5,000 reais ($881.27) per month from income tax, with the revenue gap set to be covered by new levies on high earners and profits and dividends sent abroad.

The proposal, whose initial announcement late last year triggered a negative market reaction on fiscal concerns, is seen as one of President Luiz Inacio Lula da Silva's key plans to regain popularity amid declining approval ratings.

The Lula administration has consistently stated that the proposal would be fiscally neutral, with the leftist leader himself underscoring it at an event on Tuesday where he also said the move seeks to promote tax justice.

As first reported by Reuters on Monday, the bill - which must be approved by Congress this year to take effect in 2026 - includes a 10% withholding tax on profits and dividends remitted overseas.

According to a presentation released by the government, the measure would increase revenues by 8.9 billion reais a year.

Additionally, the government sought to introduce a minimum effective tax on high-income Brazilians, applying to annual earnings above 600,000 reais.

The tax rate would rise gradually, capping at 10% for gross income exceeding 1.2 million reais per year, and is estimated to increase revenues by 25.22 billion reais a year.

Finance Minister Fernando Haddad said that the bill is "balanced" in fiscal terms. Still, according to the government's presentation, the impact of tax exemptions will amount to 25.84 billion reais next year - less than the total revenue gains.

Currently, individuals earning up to 2,824 reais per month are exempt from income tax.

($1 = 5.6736 reais)

(Reporting by Marcela Ayres and Lisandra Paraguassu; Editing by Gabriel Araujo, Alexandra Hudson)