Lula government studies limiting deduction of medical expenses in Income Tax

The economic team of the government of President Luiz Inácio Lula da Silva (PT) is studying the possibility of establishing a ceiling for the discount of medical expenses in the Personal Income Tax (IRPF), following the logic already applied to education expenses. The proposal aims to contain abuses and reinforce public revenue, and there is currently no limit on medical deductions.

According to an investigation by the Newspaper published this Friday (19), the possibility of limiting medical expenses has generated distortions in the IRPF, especially favoring higher income taxpayers. A People’s Gazette contacted the Ministry of Finance early in the morning to confirm the information and did not receive a response until mid-afternoon.

According to the investigation, among the cases under discussion is the deduction of expenses for aesthetic procedures such as botox, which is often declared a dermatological treatment.

Brazilian legislation allows the full deduction of expenses with professionals and health plans in the IR calculation base, resulting in a lower base for applying the rates and, consequently, lower tax collection.

This possibility confirms one of the first statements made by Minister Fernando Haddad at the beginning of the new government, in January 2023. At the time, he defended a fine-tooth comb in IRPF deductions.

“The first step is to comb abuse. Every time there is no ceiling, no deduction limit, abuse is identified,” he said in an interview with Brasil 247.

The investigation also points out that taxpayers deducted a total of R$128 billion in health expenses in 2022 alone, representing a revenue loss of R$17 billion for the Revenue. Previous government data indicates that just 0.8% of medical deductions benefit the poorest 50%, while 88% favor the highest-income 20%.

The review of deductions is part of a strategy to identify public policies that can be reformulated to optimize the Budget in the coming years. The Budget Execution Board (JEO), composed of the ministers of Finance, Planning, Civil House and Management, will analyze the technical and political feasibility of these initiatives.

Limiting deductions is also part of the government’s effort to increase tax collection and achieve the goals of balance and even a surplus in public accounts until the end of the Lula government.