New tax reform proposal exempts 16 million Brazilians from income tax

infrastructure New tax reform proposal exempts 16 million Brazilians from income tax
Economy Minister Paulo Guedes (without a mask) and Speaker Lira. Photo: Pablo Valadares/CD

Economy Minister Paulo Guedes submitted the second part of the government’s tax reform this morning. The proposal increases the threshold for income tax exemptions from monthly earnings of BRL 1,900 to 2,500 (USD 387 to 509). The change could benefit 8 million workers, doubling the number of taxpayers that would be exempt from filing income tax returns.

During the 2018 campaign, Mr. Bolsonaro promised to raise the threshold to those earning up to BRL 5,000 a month.

The proposal also includes reducing corporate income taxes from 15 to 10 percent — a reduction that would be implemented gradually over two years. 

“There is no risk of unbalancing public finances,” said Mr. Guedes. To compensate for the loss in revenue, the Economy Ministry wants to tax dividends. “When everyone pays [taxes], it is possible that everyone will pay less,” said House Speaker Arthur Lira.

Last year, the government presented the first part of its proposal by merging social security taxes PIS and Cofins. The administration believes slicing the tax reform into multiple bills will facilitate its approval in a highly fragmented Congress — though some experts say this strategy could further stall one of the most pressing issues for improving Brazil’s business environment.