Brazil’s Lula sanctions an increase in tax exemptions for low-income people

Brazil’s Lula Delivers on Key Campaign Promise with Income Tax Exemption

Brazilian President Luiz Inácio Lula da Silva made good on a major campaign pledge Wednesday by signing legislation that exempts citizens earning up to 5,000 reais ($940) monthly from income taxes, more than doubling the previous threshold.

“A promise made, a promise kept,” Lula declared on social media platform X after approving the measure, which takes effect in 2025.

The reform extends beyond just the full exemption, also establishing tax discounts for Brazilians with monthly incomes up to 7,350 reais ($1,400). According to presidential palace figures, approximately 15 million citizens will benefit from the changes – 10 million will escape income tax liability entirely, while another 5 million will see their tax burden reduced.

To counterbalance the expected revenue loss, the legislation introduces a progressive minimum effective tax rate targeting high-income earners. The new structure affects roughly 140,000 wealthy Brazilians who earn over 600,000 reais ($113,000) annually. The rate scales up to 10% for those with annual incomes exceeding 1.2 million reais ($226,000).

Finance Ministry data indicates these affluent taxpayers currently pay an average effective tax rate of just 2.5%, highlighting the significant wealth disparity in Latin America’s largest economy. For context, Brazil’s national statistics agency IGBE reports that 90% of the population earned less than 4,040 reais ($750) monthly in 2024 when measuring household income per capita.

The tax reform passed with unanimous support in both the House and Senate, reflecting widespread public backing for reducing the tax burden on Brazil’s working and middle classes. The measure arrives at a crucial time for Lula, who has been positioning himself for a potential fourth term in office next year.

Income tax reform has been a recurring political theme in Brazil. Both Lula and his predecessor, Jair Bolsonaro, campaigned on promises to at least double the income tax exemption during their heated 2022 electoral contest, which Lula won by a narrow margin. Bolsonaro had previously made similar pledges during his successful 2018 campaign but failed to deliver during his term.

The political victory comes at an opportune moment for Lula, who had been experiencing declining popularity in recent months. His approval ratings have since rebounded, partly due to an unexpected development in international relations. When former U.S. President Donald Trump imposed politically motivated 50% tariffs on various Brazilian imports, the move inadvertently boosted Lula’s standing domestically as he defended national interests. Many of these tariffs have since been rescinded.

Brazil’s tax reform reflects broader economic challenges facing the country, which continues to grapple with significant inequality despite being one of the world’s largest economies. The new tax structure attempts to address this imbalance by shifting more of the burden to the wealthiest segment of society while providing relief to lower and middle-income earners who make up the vast majority of the population.

Economic analysts suggest the reform could stimulate domestic consumption by increasing disposable income for millions of Brazilians, potentially boosting economic growth in the short term. However, some financial experts have expressed concerns about the long-term fiscal implications of reducing the tax base without implementing more comprehensive reforms to Brazil’s complex tax system.

As the 2026 presidential election approaches, Lula’s ability to fulfill this high-profile campaign promise may serve as a cornerstone of his potential reelection bid, demonstrating to voters his commitment to economic policies that benefit Brazil’s working class.