Brazil’s lower house has passed an exemption of as much as 5,000 reais ($940) a month in income from taxation, double the current rate and an objective of President Luiz Inácio Lula da Silva’s 2022 electoral campaign.
The House approved the bill unanimously on 1st October and will send the measure to the Senate, where Lula stated he expects final approval for the legislation, which has won wide public backing.
Lula summed up the vote on X as: “A victory in favor of tax justice and the struggle against inequality in Brazil, for 15 million Brazilian workers.”
In the March bill submitted to Congress, Lula’s left-wing government suggested compensating the loss of state revenue by implementing an effective minimum tax for the wealthy — a tax that must always be paid, no matter how many deductions and credits the taxpayer may have.
The new minimum effective tax rate would cover those earning more than 600,000 reais ($113,000) annually, increasing to 10% from zero for those earning more than 1,200,000 reais (some $226,000) per year.
That bill would affect some 141,000 high-income earners in Brazil, who pay an average effective tax rate of 2.5% currently, according to Brazil’s Finance Ministry.
If the legislation passes the Senate, Lula would then sign the reform into law, and it would go into force on Jan. 1, 2026.
The across-the-board support in the lower house for the bill — even though Lula’s coalition does not hold a majority within the chamber — indicates the wide-based public support for the tax exemption and the absence of any well-defined opposition to Lula’s government.
Lula is set to seek reelection next year.
He had been experiencing plummeting popularity, though he has improved somewhat in the recent months as an unintended consequence of the U.S. President Donald Trump‘s politically motivated 50% tariff on a variety of Brazilian imports. The defense of Brazilian sovereignty by the leftist president has resonated with public opinion.
Raising the exemption from income taxes might be a big political win for Lula and might serve to win over fence-sitting voters from the ranks of former right-wing President Jair Bolsonaro, Lula’s main political rival, says Luciana Santana, a political scientist at the Federal University of Alagoas.
“It will have a significant effect on a significant part of the population, and it’s something the government requires: a policy with large societal effects,” Santana said.
Approximately 90% of the nation’s population took home less than 4040 reais in 2024, when household income per capita is considered, Brazil’s national statistics agency IGBE found.
Both Lula and Bolsonaro made a commitment to at least double the exemption of income tax when both ran in the bitterly fought 2022 election, which was won narrowly by Lula.
Bolsonaro had made the same commitment when he campaigned in 2018, to no success.
Santana explained that the choice by Speaker Hugo Motta, who is not a member of Lula’s party, to place the measure on the agenda at this time could have been an attempt to improve lawmakers’ popularity following a series of unpopular actions by the chamber.
Large groups of protesters had protested lawmakers’ debate of an amnesty for Bolsonaro and others found guilty of trying a coup earlier this month.
Citizens also marched in protest against draft legislation that would have made it more difficult for legislators to be charged or arrested for crimes. Under pressure from protests, that project was subsequently abandoned.
“Income tax exemption is not a favor from the state, it is the acknowledgement 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,” Motta said on social media, after the approval.
Getulio Vargas Foundation economist Carla Beni stated that the exemption proposal will rectify distortions where most of the wealthy pay proportionally less in tax than the poor, and that it will benefit the economy.
“People will spend more, save, or pay off debts,” Beni said.
