Brazil’s Income Tax Exemption

We frequently write about taxes, particularly as they impact Americans doing business in Brazil. For the Brazilian government, income tax payments generate significant revenue, so it’s no wonder there’s controversy when the topic involves granting exemptions.

During his presidential campaign, Brazil’s newly elected president, Luiz Inacio Lula da Silva, promised voters that he’d raise the exemption limit on income tax. And it appears he’s now trying to make good on that promise.

The current exemption applies to anyone earning up to R$1,903.98. But according to Reuters, Lula wants to increase the minimum wage from R$1,302 to R$1,320 and then increase the income tax exemption to R$2,640. The exemption would therefore cover taxpayers earning up to two times the federal minimum wage.

The goal is to boost the disposable income of millions of low wage workers with the hope that it leads to more consumer spending and greater economic growth. Over the past few years, Brazil has struggled with high levels of inflation, unemployment and economic uncertainty.

While the proposed change won’t affect American investors in any significant way, it could have an indirect impact. A stronger, more robust Brazilian economy may persuade nervous foreigners who seek a more stable market prior to investing.

The details of the proposed income tax exemption increase are still being worked out. So for now, there’s nothing new. But if the president has his way, we may soon see millions more who are exempt from paying taxes.