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The Expansion of Income Tax Exemption Will Benefit Millions of Middle-Class Brazilians, While the Bill Will Be Compensated by High-Income Taxpayers Who Will Pay More on Profits and Dividends
The decision to expand the income tax exemption threshold promises to change the way Brazil collects taxes, primarily benefiting middle-class workers and shifting part of the burden to the wealthiest segment of the population.
According to estimates from the Federal Revenue Service, about 15 million taxpayers will stop paying or will pay less tax, within a universe of approximately 40 million filers. The change, which takes effect in 2026, establishes that those earning up to R$ 5,000 per month will be exempt. Salaries between R$ 5,000 and R$ 7,350 will have partial exemptions, reducing the applied rate.
Currently, only those earning up to R$ 3,036 monthly are exempt from payment, equivalent to two minimum wages. With the new rule, the exemption range expands considerably, providing fiscal relief to millions of workers.
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Wealthier Individuals Assume the Cost of the Change
Economist Bruno Carazza, a commentator for Jornal da Globo and a Ph.D. in economic law from UFMG, emphasized that while millions will benefit, around 150,000 high-income Brazilians—those earning over R$ 50,000 per month, or R$ 600,000 per year—will have to offset the difference.
According to him, this small portion of the population concentrates a significant part of the national income and will be subjected to a progressive tax on profits and dividends that could reach 10%. “The measure implements the idea of removing the poorest from the tax base and transferring the responsibility to the wealthiest,” Carazza stated.
Tax Justice in Debate
Over the last 20 years, the richest taxpayers have been less pressured in the Brazilian tax system. Several mechanisms have allowed this distortion, such as the exemption of profits and dividends and the reduced taxation on financial investments.
Carazza notes that, in practice, the higher the income, the lower the effective proportion of tax paid in the country. The proposal aims to correct this imbalance by establishing a minimum charge of 10% on income that was previously exempt.
Those who rely solely on salary will continue to be subject to the traditional progressive tax table, with withholdings that can reach 27.5%.
Loops Continue
Despite the progress, the economist stresses that the system still preserves benefits for specific groups. Values received as inheritance, life insurance, and private pension plans, for example, remain outside the reach of the Income Tax.
Even so, the expectation is that the debate on tax reform will gradually advance, reducing historical privileges and increasing the perception of tax justice.
“The measure signals a change in the revenue model, expanding exemptions for millions of middle-income taxpayers and shifting part of the responsibility to those at the top of the economic pyramid,” Carazza emphasized.
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