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

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RIO DE JANEIRO (AP) — Brazilian President Luiz Inácio Lula da Silva on Wednesday sanctioned a bill that exempts people earning up to 5,000 reais ($940) a month from income taxes, more than doubling the current exemption and meeting a key priority of his 2022 election campaign.

“A promise made, a promise kept,” Lula said on X on Wednesday.

The measure, which will come into effect next year, also establishes tax discounts for incomes up to 7,350 reais ($1400).

Some 15 million Brazilians will benefit from the new law, according to the presidential palace. Approximately 10 million will no longer pay income tax, while 5 million will benefit from a reduction.

To offset the loss of state revenue, the government will introduce a minimum effective tax rate for high-income individuals.

The new minimum effective tax would apply to people who earn over 600,000 reais (approximately $113,000) a year, ramping up from zero to 10% for those who earn over 1,200,000 reais (some $226,000) annually.

The new legislation will target some 140,000 wealthy individuals in the country, who on average currently pay an effective tax rate of 2.5%, according to Brazil’s Finance Ministry.

Some 90% of the country’s population earned less than 4040 reais ($750) in 2024, when considering household income per capita, according to Brazil’s national statistics agency IGBE.

The bill passed the House and the Senate unanimously, reflecting the broad public support for the tax exemption.

The adoption of the bill is a political victory for Lula, who will run for a fourth term next year.

Both Lula and Bolsonaro pledged to at least double the income tax exemption during the hotly contested 2022 election, which Lula narrowly won. Bolsonaro had also committed to the reform when campaigning in 2018, to no avail.

Lula had been facing plummeting popularity, but he recovered as an unintended effect of U.S. President Donald Trump’s politically-motivated 50% tariff on a range of Brazilian imports. The U.S. has since revoked many of those tariffs.