Brazil’s lower house of Congress voted on Wednesday to expand income tax exemptions for the middle class, a move welcomed by millions of households but met with skepticism from investors.
The bill, which now awaits Senate approval, would exempt about 16 million Brazilians from paying income tax, according to government estimates. It raises the exemption threshold from 3,000 reais to 5,000 reais ($940) in monthly earnings.
The measure was passed unanimously, drawing rare bipartisan support, including from the party of former far-right president Jair Bolsonaro.
To offset the revenue shortfall, the bill proposes higher taxes for top earners. Individuals making more than 50,000 reais a month would see their income tax rate gradually rise from the current 2.5 percent to 10 percent if the proposal becomes law.
The bill has broad popular backing among supporters of President Luiz Inacio Lula da Silva’s left-wing government, who argue it will ease the financial burden on low- and middle-income families. Lawmaker Arthur Lira, who sponsored the proposal, described it as “tax justice” for “those who earn the least.”
Still, investors remain wary. When the government first introduced the measure last year alongside planned spending cuts, it sparked a historic depreciation of Brazil’s currency, fueling market unease.
Lula, who has hinted at a possible re-election bid next year, has framed the reform as part of his broader effort to strengthen social equity.
What you should know
If approved, Brazil’s new tax reform would exempt 16 million citizens from income tax while increasing rates for the wealthiest earners. While popular among voters, the proposal has rattled investors who fear fiscal strain and potential economic instability.
