Brazil Raises Income Tax Exemption Threshold to Aid Low-Income Families

The Brazilian Senate has unanimously approved a significant increase in the personal income tax exemption, raising the threshold to include individuals earning up to R$5,000 per month. This legislative milestone was praised by Finance Minister Fernando Haddad as a key moment in Brazil’s fiscal history, aiming to reduce inequality and boost economic activity. The measure is pending sanction by President Luiz Inácio Lula da Silva, who is expected to sign it following the COP30 conference in Belém.

The new tax reform, a fulfillment of one of President Lula's major campaign promises, will exempt low-income earners from income tax, providing relief to many Brazilian families and stimulating internal consumption. Haddad emphasized the social benefits, noting that this initiative would enhance purchasing power and consumption while reducing family indebtedness. The policy is designed to be fiscally neutral by introducing a new 10% tax on annual incomes exceeding R$1.2 million, targeting the wealthiest 0.1% of the population.

Senate President Davi Alcolumbre confirmed that the exemption increase would take effect in January 2026, representing a strategic shift in Brazil’s approach to economic inequality by balancing tax relief for the masses with increased contributions from the wealthiest. Minister Gleisi Hoffmann highlighted the broader economic agenda behind the reform, aimed at fostering growth and fairness.

This substantial tax policy adjustment contrasts with continuing concerns over the country’s high Selic interest rate, which remains at 15% and has drawn criticism from industrial and commercial sectors for stifling economic growth. However, the tax exemption increase marks a notable federal effort to enhance economic equity and consumer power in Brazil.