In a significant move aimed at easing the tax burden on millions of Brazilians, President Luiz Inácio Lula da Silva (PT) signed a new law, during a ceremony at the Planalto Palace in Brasília, which expands the exemption threshold for the Income Tax (IR) to those earning up to R$ 5,000($1,000) per month (R$ 60,000($12,000) annually).
The bill, which was passed by the National Congress earlier this month, not only increases the tax exemption but also introduces a progressively smaller discount for individuals earning up to R$ 7,350 monthly. This legislative change will allow taxpayers to calculate their savings, determining how much less they will pay in taxes.
Starting in 2026, this sanctioned measure will also impose a minimum tax requirement on high-income earners. To offset the loss in tax revenue from the expanded exemptions, the proposal includes a progressive taxation scheme for those earning above R$ 600,000($120,000) per year, with rates reaching up to 10%.
The law further addresses compensation for states and municipalities, provides tax relief for professionals working in notary and registry services, and introduces a new mechanism for taxing profits and dividends.
Who Will Be Affected?
According to economist Bruno Carazza, who holds a doctorate in Economic Law from the Federal University of Minas Gerais (UFMG) and is a commentator for Globo News, approximately 15 million taxpayers will benefit from the new law. These benefits will manifest as either a complete exemption or a reduction in tax payments.
Conversely, an estimated group of 140,000 to 150,000 high-income individuals, those earning more than R$ 50,000 monthly or R$ 600,000 annually, will shoulder part of the cost associated with these tax changes.
Annual Savings for Workers
The expanded exemption is expected to provide monthly gains for taxpayers who fall within the new parameters. Workers earning R$ 5,000 per month (R$ 60,000 annually) could see an increase of R$ 312.89 in their monthly income, almost 10%, a value that decreases incrementally with higher earnings, past R$ 5,000.
The bill also offers a progressively smaller discount for incomes up to R$ 7,350 per month, benefiting taxpayers earning from R$ 5,001 onwards. For instance, someone making R$ 7,000 monthly would gain approximately R$ 46.61 per month and R$ 605.87 annually, including the thirteenth salary.
Those earning above this bracket will not experience changes, as the progressive table of the Income Tax remains unaltered. Similarly, no changes occur for those earning up to R$ 3,036, who are already exempt under the current tax table.
Will the Wealthiest Pay More Taxes?
Yes, the legislation intends to ensure that people with an annual revenue surpassing R$ 600,000, equivalent to over R$ 50,000 per month, face a minimum effective tax rate of up to 10% applied solely on the revenue exceeding this threshold.
| Annual Income (R$) | Revenue Above 600k (R$) | Extra Tax Rate (%) | Extra Tax Due (R$) |
|---|---|---|---|
| 600,000 | 0 | 0% | 0 |
| 650,000 | 50,000 | 2% | 1,000 |
| 700,000 | 100,000 | 4% | 4,000 |
| 800,000 | 200,000 | 6% | 12,000 |
| 900,000 | 300,000 | 7% | 21,000 |
| 1,000,000 | 400,000 | 8% | 32,000 |
| 1,100,000 | 500,000 | 9% | 45,000 |
| 1,200,000 | 600,000 | 10% | 60,000 |
| 1,200,000+ | 600,000+ | 10% | 60,000+ |
The signing of this law marks a pivotal shift in Brazil’s tax policy, aiming to stimulate economic growth by increasing disposable income for a significant portion of the population while ensuring the fiscal sustainability of the government’s accounts through a more balanced tax distribution.
Source: Globo
