Durigan: Brazil to cut tax exemptions by BRL 19.6B in 2026

Durigan: Brazil to cut tax exemptions by BRL 19.6B in 2026

Brazil's government plans to reduce tax exemptions by BRL 19.6 billion in 2026, according to a recent announcement. This adjustment is part of the ongoing tax relief plan that aims to exempt individuals earning up to 5,000 reais a month from income tax. The Chamber of Deputies has already approved the urgency for the bill, and it must pass in 2025 to take effect in 2026. This measure is expected to benefit approximately ten million taxpayers, while millions more just above the threshold would pay less [1].

The initial tax exemption plan was projected to cost the government BRL 25.8 billion in 2026. To cover this revenue loss, the bill introduced a "minimum tax" for very high earners. Individuals making more than 600,000 reais a year would face a rising levy that tops out at 10 percent for incomes above 1.2 million reais. Additionally, dividend payments sent abroad would be taxed, with the government projecting these changes to raise BRL 34.1 billion, enough to cover the shortfall [1].

However, the real fight is not over the exemption itself, but over how to fund it. Various political factions have proposed different methods to cover the cost. The Progressive Party and União Brasil want to raise the social contribution on net profits from the country's largest banks, those earning over one billion reais. The Liberal Party, on the other hand, prefers to tax online betting companies instead of high earners. A harder line faction even wants to double the exemption to 10,000 reais and abandon all compensation, a move Finance officials warn would blow a hole in the budget [1].

President Luiz Inácio Lula da Silva has made tax relief for lower and middle earners a flagship promise, but Congress wants to shape the details to its own advantage. With elections approaching in 2026, every party is eager to claim credit for putting money back into voters' pockets without being blamed for new taxes elsewhere [1].

The new tax exemption reduction of BRL 19.6 billion is a significant adjustment to the original plan. This reduction is part of the ongoing negotiations and political maneuvering over how to fund the tax relief. The exact details and final implementation of this reduction are still being debated in Congress [1].

References:
[1] https://www.riotimesonline.com/brazils-tax-relief-plan-stalls-as-lawmakers-clash-over-who-should-pay-the-bill/