Income tax exemption for R$5,000 could take 4 years, says Haddad – 05/05/2023 – Market

The Minister of Finance, Fernando Haddad, says he still does not know how he will reach the exemption of R$ 5,000 from Income Tax, but he has four years to meet the challenge. “It is the president’s determination and we are going to comply”, he says in an interview with CBN this Friday (5).

The exemption range is a campaign promise by President Luís Inácio Lula da Silva and could cost BRL 216 billion over four years, according to calculations by XP Investimentos.

Haddad says he is studying a measure similar to the one adopted in the exemption announced on May 1st. The Lula government edited an MP (provisional measure) to increase the exemption range to R$ 2,112 and create a simplified deduction of R$ 528. This fixed discount cannot be combined with other deductions, such as social security contributions, alimony and dependents. Whichever is more advantageous.

In practice, earnings of BRL 2,640 – the equivalent of two minimum wages – will be exempt from IR.

In the announcement, made during his speech at the unified act of trade union centrals in celebration of Labor Day, in São Paulo, Lula reaffirmed having “a commitment with you until the end of my mandate that we will have exemption up to R$ 5,000” .

The president also defended the total exemption of income received by workers in the form of profit sharing (profit sharing). Today, these amounts are tax-free up to a ceiling of R$6,270 —above that, rates ranging from 7.5% to 27.5% apply.

The Lula government’s option was to adopt a design that would reduce the impact of the measure on public accounts, losing less in revenue. The waiver should be around BRL 3.2 billion this year and BRL 6 billion in 2024.

Haddad believes that the government would be able to reduce the tax burden of people with salaries of up to R$ 5,000 with other types of discounts. According to the minister, next year, it will be possible to raise the exemption range to R$ 3,000.