Haddad: Increasing the Exemption Bracket is the Greatest Income Tax Reform in Our History

Brazil’s ministers Fernando Haddad (Finance) and Rui Costa (Chief of Staff) provided details on Thursday, November 28, about the Federal Government's decision to increase the income tax exemption bracket for those earning up to BRL 5,000. The proposal — one of President Lula’s campaign promises — will be sent to the National Congress for consideration. “The BRL 5,000 exemption bracket was announced during the election campaign. The Brazilian people voted for this program and, therefore, it was rendered legitimate by the ballot. The president is being honest with the voters who elected him,” said Rui Costa.

The exemption bracket of up to BRL 5,000, considering the current status, will also benefit everyone earning up to around BRL 7,500, as they will begin paying lower rates than they do today”

Fernando Haddad, ministro da Fazenda

Minister Fernando Haddad noted that the new bracket results from a process implemented since the start of the Lula administration. “When we took office, the exemption bracket was around BRL 1,800. Starting on January 1, 2025, we will reach over BRL 3,000. In other words, with the increase in the bracket, a significant portion of the Brazilian population will no longer pay income tax—but now, the goal is for this exemption bracket to reach BRL 5,000 by January 1, 2026.”

When addressing the nation on Wednesday to present new measures to strengthen the fiscal rule, the minister described the measure as “the greatest tax reform in our history. ” Haddad highlighted that the initiative will have a positive impact even for those earning slightly more. “The exemption range of up to BRL 5,000, considering the current status, will benefit everyone earning up to around BRL 7,500, as they will begin paying lower rates than they do today,” he explained.

COMPENSATION – The Finance Minister also emphasized that, despite providing more income to workers, the increase in the exemption bracket will not result in revenue loss. Compensation will come from increasing contributions from those earning more than BRL 50,000 per month. “People who currently have an income and do not pay tax, an income of more than BRL 50,000 per month, that is, BRL 600,000 per year, will start paying the minimum. What does this mean? Suppose that a person has rent, salary, dividends, interest: they will add up what they receive and calculate 10% of this amount,” explained Haddad. “Suppose that they have an income of BRL 600,000. They will do the following calculation: did I pay BRL 60,000 in income tax? No. I paid BRL 35,000. So I need to collect BRL 25,000 to make up the BRL 60,000. Now, suppose they earn BRL 600,000 and pay BRL 80,000 in tax. In this case, they are not affected by the measure. In other words: we are creating a new concept, considering all the income and everything that citizens have already paid in that fiscal year.”

INEQUALITY – According to Haddad, Brazil can no longer continue with the inconsistency of being one of the world’s largest economies globally while being one of its most unequal countries. “We are proud to be among the ten largest economies in the world, but we are not ashamed of being among its ten most unequal countries. I do not know of a government that has fought privilege so hard in a two-year span. We face many challenges. I will mention closed funds, the super-rich, funds in tax havens. In other words: this government is extremely willing to confront this type of injustice,” he said.