Brazil’s lower house approves an increase in tax exemptions for low-income people

Brazil's lower house has approved exempting up to 5,000 reais ($940) a month from income taxes, which would more than double the current exemption and meet a key priority of President Luiz Inácio Lula da Silva's 2022 election campaign. The bill passed the House unanimously on October 1 and will now head to the Senate, where Lula said he expects final approval for the measure, which has drawn broad public support. Lula described the vote on X as "A victory in favor of tax justice and the fight against inequality in Brazil, benefiting 15 million Brazilian workers." In the bill sent to Congress in March, Lula's leftist government proposed to offset the loss of state revenue by introducing a minimum effective tax rate for high-income individuals—a tax that must be paid regardless of the amount of deductions and credits the taxpayer might have. The new minimum effective tax would apply to people who earn over 600,000 reais (approximately $113,000) a year, ramping up from zero to 10% for those who earn over 1,200,000 reais (some $226,000) annually. That legislation would target some 141,000 wealthy individuals in the country, who on average currently pay an effective tax rate of 2.5%, according to Brazil's Finance Ministry. If the measure passes the Senate, Lula would then sign the reform into law, and it would come into effect on January 1, 2026. "Income tax exemption is not a favor from the state, it is the acknowledgment of a right, a step forward in the country's social justice, ensuring more money on the table for those earning up to 5,000 reais," Speaker Hugo Motta said on social media, after the approval. Carla Beni, an economist at the Getulio Vargas Foundation, said that the proposed exemption helps correct imbalances in which many of the rich pay proportionately less tax than the poor, and that it would help the economy. "People will either spend more, save or, pay off debts," Beni said. This article was provided by The Associated Press.