Income Tax Exemption in Brazil Increased to 5,000 Reais

Brazil’s lower house of Congress has unanimously approved a bill to raise the monthly income tax exemption to 5,000 reais ($940), more than doubling the current threshold. The reform is a key promise of President Luiz Inácio Lula da Silva and is expected to benefit 15 million Brazilian workers.

The bill now moves to the Senate, where Lula expects final approval. If passed, the law will take effect on January 1, 2026.

President Lula Celebrates “Tax Justice”

Lula described the vote as “a victory in favor of tax justice and the fight against inequality in Brazil,” emphasizing its positive impact on middle- and lower-income earners.

To offset revenue losses, the government proposed a minimum effective tax for high earners. Individuals earning over 600,000 reais ($113,000) per year would pay a minimum tax, increasing to 10% for incomes above 1.2 million reais ($226,000). The change affects 141,000 wealthy Brazilians, who currently pay an average tax rate of 2.5%, according to the Finance Ministry.

Broad Support Despite Coalition Limits

The unanimous approval is notable because Lula’s coalition does not hold a majority in the lower house. Experts say it reflects both strong public support and a lack of coherent opposition.

Lula is expected to run for reelection next year. His popularity had dipped earlier but improved recently after U.S. tariffs on Brazilian imports strengthened his stance on defending national sovereignty.

Political scientist Luciana Santana said, “This policy will have a big impact on a considerable portion of the population and is essential for broad societal benefits.”

The majority of Brazilians Benefit

According to Brazil’s national statistics agency, IBGE, around 90% of the population earned less than 4,040 reais per month in 2024. The exemption will therefore affect the majority of Brazilians directly.

Both Lula and former President Jair Bolsonaro promised to increase the income tax exemption during the 2022 election, though Bolsonaro did not implement it.

Lawmakers Seek Public Support

Speaker Hugo Motta, not a member of Lula’s party, said the approval also responds to lawmakers’ need to regain public trust. Earlier this year, controversial proposals included shielding lawmakers from prosecution and an amnesty for Bolsonaro and others convicted of attempting a coup, both of which faced mass public protests.

Motta said on social media: “Income tax exemption is not a favor from the state, it is the acknowledgement of a right and a step forward in social justice, putting more money on the table for those earning up to 5,000 reais.”

Economic Impact

Economist Carla Beni from the Getulio Vargas Foundation said the exemption helps correct tax imbalances, ensuring the rich pay proportionately more than the poor. She added it could also boost economic activity, as people may spend, save, or pay off debts.

The bill now awaits Senate approval, with Lula confident it will pass. The reform is set to begin in January 2026, marking a major change in Brazil’s income tax system.