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Understand The Changes In Income Tax 2026 And How They May Impact Your Income
The federal government sent a bill to Congress on March 18, 2025, which expands the exemption from Income Tax for workers with an income of up to R$ 5,000.
Furthermore, it provides progressive discounts for those earning between R$ 5,000 and R$ 7,000, benefiting millions of Brazilians. The new rule will come into effect in 2026.
Thus, to compensate for the loss of revenue, the government proposes, first, to tax large fortunes and, in addition, the profits distributed to shareholders. As a result, it seeks to make the tax system fairer and, consequently, more balanced.
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The Ministry of Finance stated that, in this context, the proposal is part of the reforms initiated in November 2024. At that time, measures were also announced to, consequently, increase tax progressivity.
How Will The New Income Tax Exemption Work?
Currently, the income tax exemption threshold is R$ 2,824. With the approval of the bill, this limit will rise to R$ 5,000, benefiting workers.
The new table, therefore, completely exempts those earning up to R$ 5,000. Additionally, there are progressive discounts for income between R$ 5,500 and R$ 6,500. On the other hand, for incomes above R$ 7,000, the current rate is maintained, which, therefore, preserves the existing taxation for this income bracket.
The government will apply the change gradually, ensuring sustainable management of the impact on revenue, balancing fiscal policy, and maintaining economic responsibility.
Impact On The Economy And The Middle Class
The expansion of the Income Tax exemption aims to stimulate consumption, reduce taxation on workers, and strengthen the economy.
According to FGV, the benefit will reach approximately 20 million Brazilians, consequently increasing their purchasing power.
Furthermore, this increase will directly contribute to the growth of the goods and services sector, thus generating a positive impact on the economy.
In addition, the proposal meets President Lula’s campaign promises, who advocates for a more progressive and fair tax system.
How Does The Government Plan To Compensate For The Fiscal Waiver?
To balance the loss of revenue, estimated at R$ 25.84 billion in 2026, the government proposed the progressive taxation of the so-called “super-rich”. The government will apply the new tax to those earning more than R$ 600,000 per year, with a progressive rate ranging from 2.5% to 10%, depending on income.
According to the Brazilian Institute of Economics at FGV, this measure could yield up to R$ 27 billion in two years, balancing the accounts without harming social investments.
Repercussions Of The Proposal In Congress And The Market
The proposal generated diverse reactions. In the National Congress, party leaders indicated that the bill will undergo adjustments before the final vote. The President of the Chamber, Hugo Motta, stated, therefore, on March 18, 2025, that the Legislative will support the government; however, it will make adjustments to ensure responsibility. Additionally, in the financial market, according to an analysis by the Central Bank, the proposal impacted the dollar exchange rate and consequently generated volatility, especially after the announcement of the dividend taxation. Thus, economists from Ibre-FGV warned that, although the measure is progressive, it could, on the other hand, influence the attraction of foreign investments.
Expected Benefits With The New Fiscal Policy
If approved, the expansion of the Income Tax exemption will reduce the tax burden, stimulate consumption, and contribute to a fairer fiscal balance.
Thus, the measure could create positive impacts on the economy, benefiting both taxpayers and the government.
CNI specialists indicate that the text may undergo technical adjustments before approval, requiring strategic negotiations from the government to ensure greater consensus in Congress.
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