Lula’s Income Tax Reform Aims to Boost Middle-Class Support in Brazil

President Luiz Inacio Lula da Silva has proposed exempting workers who earn less than BRL 5,000 ($880) monthly from income tax, benefiting approximately 13.4 million workers. The plan seeks to increase his popularity amid low approval ratings and is presented as fiscally neutral, offsetting revenue loss by taxing high-income earners. If approved, this reform would significantly alter Brazil’s income tax landscape.

Brazilian President Luiz Inacio Lula da Silva has proposed a significant tax reform aimed at exempting workers earning less than BRL 5,000 ($880) monthly from income tax. This initiative aligns with Lula’s campaign commitment, as he seeks to enhance his popularity amidst low approval ratings of approximately 24%.

The tax reform, introduced to Congress on March 18, would benefit about 13.4 million formal workers, constituting 32% of Brazil’s workforce, in addition to over 10 million workers who currently qualify for income tax exemptions under the existing threshold of BRL 2,824.

During the announcement in Brasilia, President Lula emphasized that the proposal is fiscally neutral and claimed, “This is a neutral project. It won’t increase the country’s tax burden by a cent. What we’re doing is just making amends.” To counterbalance the predicted revenue loss of BRL 26 billion ($4.6 billion), the government aims to raise taxes on approximately 114,000 high-income earners, representing the top 0.06% of the population.

Lula expressed hopes that the reform would improve his standing among middle-class voters, stating, “Now it’s worth it,” and expressed confidence that Parliament would support the measure for the benefit of the Brazilian populace. Brazil’s tax system is noted for being regressive, where poorer citizens disproportionately bear the tax burden compared to their wealthier counterparts.

The suggested plan would also offer partial tax discounts to workers earning between BRL 5,000 and BRL 7,000. Despite concerns regarding the projected surplus of BRL 8 billion ($1.4 billion), Treasury Executive Secretary Dario Durigan clarified that the intention is fiscal neutrality rather than achieving a primary surplus.

Lawmakers in the Chamber of Deputies are expected to adjust the proposal prior to its approval, which, if passed without major revisions, would exempt 90% of taxpayers from income tax, fully or partially. Finance Minister Fernando Haddad reiterated the proposal’s fiscal neutrality, even amid initial skepticism regarding potential fiscal imbalance. If endorsed this year, the new tax framework would come into effect for the 2026 tax return.

In summary, President Lula’s proposed tax reform aims to exempt low-earning workers from income tax while adjusting taxation for the highest earners to maintain fiscal neutrality. This initiative represents a crucial step to boost his popularity among middle-class voters, amidst a backdrop of Brazil’s regressive tax system. Approval of this measure could significantly reduce the tax burden for a large segment of the workforce, exemplifying Lula’s commitment to fulfill campaign promises.

Original Source: www.intellinews.com