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New Income Tax law brings important changes: taxpayers with income of up to R$5 will benefit, while those earning more than R$50 will face significant impacts on tax rates and deductions.
A new proposal to change the Income Tax law promises to have a significant impact on the lives of millions of Brazilians in the coming years. Presented as a major victory for taxpayers, the measure is still awaiting a vote to be definitively approved, but it is already generating positive expectations. According to information from G1, the new law could exempt up to 36 million people from paying Income Tax until 2026.
The proposal aims to correct the historical gap in the tax rate, mainly benefiting low- and middle-income workers. If approved, this change will represent a milestone in the Brazilian tax system, bringing financial relief to millions of families.
When does the new Income Tax law come into effect?
Scheduled to come into force only in 2026, The changes to Income Tax depend on approval by Congress. The exemption, however, will not be universal, since those who earn more than R$5 will have the benefit reduced gradually, with a transition that reaches salaries of up to R$7.500, avoiding sudden increases in the tax.
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By decision of the president Luiz Inácio Lula da Silva, the government included in the announcement the exemption from income tax for those who earn up to R$5 thousand per month and an increase in taxes for those who earn more than R$50. Thus, with the new Income Tax law, for those who earn more than R$50, the minister's main plan is to establish a minimum effective tax rate of 10%.
However, for those who are on the other end and earn less than R$5, the changes to Income Tax are positive, because the government promises to keep these workers out of the reach of the famous Federal Revenue Lion.
How does Income Tax currently work?
The new income tax law under the Lula government for those who earn up to R$5 per month promises to be a help to thousands of Brazilians, in other words, a great gift to workers. However, the new Income Tax law still needs to be approved before it comes into effect.
Currently, the Income Tax table establishes that those who receive up to two minimum wages (R$ 2.824) also do not declare the tax. In fact, it is worth remembering that the tax is not charged on the total salary. For example, the amount discounted for INSS does not enter into the account. IR rates are not applied in full to all income.
According to tax lawyer and master in Law from PUC-SP, Thulio Carvalho, despite the government having informed that it plans to compensate for this measure by increasing taxes on those who earn more than R$50 thousand monthly or R$600 thousand per year, there is the emergence of uncertainty in the country's fiscal scenario.
How does the 10% tax work on salaries up to R$50?
As a way of compensating for changes in Income Tax for incomes of up to R$5 per month, the Lula government will propose to Congress an effective tax rate of 10% for those who earn more than R$50 per month.
Currently, although the income tax rate for this income bracket is 27,5%, many taxpayers with income in this amount are able to pay less tax by receiving most of their income from other less taxed sources, such as through dividends.
With the new Income Tax law, the government intends to add up all sources of income of taxpayers, from those taxed at source to those exempt, and calculate who is paying less than 10% of the total.
These taxpayers would then be required to contribute the new tax in their annual income tax return to offset this difference. For example, if a person pays 5% income tax on their income, they would need to pay more than 5% to reach 10%.
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