Brazil’s government eyes raising income tax exemption in 2023

© Reuters.

By Marcela Ayres

BRASILIA (Reuters) – Newly elected Brazilian President Luiz Inacio Lula da Silva is considering an income tax exemption for workers who earn two times the minimum wage, or just over 2,600 reais ($504.64) a month from 1,903 currently, two sources with knowledge of the negotiations said on Saturday.

The idea, still under review, is to at least partially fulfill one of Lula’s campaign promises – to raise the exemption even further to cover workers earning the equivalent of 5,000 reais, a move that would increase the disposable income of those who earn less in the country, said the sources anonymously.

The information on the measure was first reported by newspapers Folha de S. Paulo and O Estado de S. Paulo.

While it could reduce income inequality, a broader exemption would reduce tax revenue at a time when the economic team seeks to reduce the strong primary deficit expected for 2023 and signal fiscal discipline.

As Reuters reported on Friday, the government is also considering raising the minimum wage to 1,320 reais from May.

That means that the exemption, if decided, would apply to workers earning up to 2,640 reais monthly.

Workers who currently earn up to 1,903.98 a month do not pay income tax, a figure that has not been updated since 2015, implying, in practice, an increase in the tax burden on Brazilians with lower wages.

($1=5.1522 reais)