Brazil's Income Tax Exemption Bill Could Boost Economy and Lower Middle-Class Spending
The approval of Brazil's income tax exemption bill aims to boost economic growth and support the lower middle class, with potential inflation and fiscal challenges noted.
- • The Chamber of Deputies approved PL 1087/25 exempting income tax for salaries up to R$ 5,000 and reducing it up to R$ 7,350.
- • Approximately 15.5 million Brazilians will benefit, with a projected R$ 25.4 billion reduction in tax revenue.
- • Economists expect the bill to stimulate consumption and economic growth while raising concerns about inflation.
- • An additional tax on incomes above R$ 600,000 annually will help offset revenue losses.
Key details
The Brazilian Chamber of Deputies unanimously approved the income tax exemption bill PL 1087/25 on October 1, 2025. The bill exempts income tax for individuals earning up to R$ 5,000 per month and reduces rates for salaries up to R$ 7,350, benefiting approximately 15.5 million people and resulting in a fiscal revenue loss of R$ 25.4 billion, or about 10% of total income tax collected. This measure, if passed by the Senate and signed into law by year-end, will take effect in January 2026.
Economists from the State University of Campinas (Unicamp) see the bill as a historic step towards tax justice and economic growth. Pedro Rossi noted that the approval “shows that the issue of taxation mobilizes society and has political space for further proposals.” Luiz Gonzaga de Mello Belluzzo emphasized the bill’s redistribution effects, anticipating that it will stimulate consumption and investment while alleviating inequality. Lower middle-class families may experience monthly relief between R$ 350 and R$ 550, boosting their spending particularly on food and services. However, concerns remain about potential inflationary pressures in the service sector due to increased disposable income.
To balance the revenue loss, the bill imposes an additional tax on individuals earning above R$ 600,000 annually, affecting roughly 141,400 high-income taxpayers. Workers’ union leaders, such as CUT president Sérgio Nobre, celebrated the approval as a fulfillment of a longstanding demand, likening the extra income to a "14th salary".
Despite the bill’s social benefits, experts call for further reforms including taxation of dividends and a more progressive income tax system to deepen equity and fiscal sustainability. Meanwhile, the broader economy showed a mixed picture with industrial production rising 0.8% in August 2025, driven by pharmaceuticals and food sectors, but still facing challenges due to Brazil’s high 15% interest rate, which constrains industrial growth.
The bill’s progression through the Senate will be closely watched as it presents potential significant impacts on Brazil’s economy, consumption patterns, and fiscal landscape in the coming year.