Lula and Bolsonaro both defend updating income tax brackets

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The Brazilian government could see its revenue from income tax fall next year, even in a scenario of fiscal fragility and risks of recession.

President Jair Bolsonaro and former President Luiz Inácio Lula da Silva, who will face each other in the second round of the presidential election on October 30, have promised to correct inconsistencies in the tax system, which would relieve class Brazilians average to at the expense of government tax revenue.

The Brazilian government has not updated income tax brackets and rates since 2015. Over the years, this has put more pressure on the country’s working middle class, while the wealthiest pay proportionately. less tax on their income.

According to calculations by the National Association of Tax Auditors, an update of income tax rates in line with official inflation since the start of the Bolsonaro government, i.e. from 2019 , would result in an increase in the number of people exempted from 7.6 million to 13.5 million, and lead to a loss of revenue for the government estimated at more than BRL 64 billion (USD 12.3 billion).

But Mr. Bolsonaro and Lula want to do more than that.

The economic team responsible for Lula’s government plan spoke of adjustment of tax brackets not only to ease the income tax burden of the lower middle class, but also to tax the wealthier more.

There are, however, no further details on which brackets would be introduced or even what form this scale of tax rates would take. Lula could give details of the proposal in the coming days as part of recent attempts to signal more centrist economic policy.

Mr. Bolsonaro’s government program, meanwhile, tax exemption projects for those earning up to five minimum monthly salaries (BRL 6,000 or less). Currently, the upper limit to qualify for income tax exemption is BRL 1,903.98. The change would be introduced at some point during the next presidential term (2023-2026), Bolsonaro’s program says.

The Bolsonaro government has already proposed a bill that would extend the income tax exemption to people earning up to BRL 2,500 per month. The bill, which was approved in the Lower House but stalled in the Senate, is part of a larger tax reform that did not pass Senate Committees earlier this year and will probably only be discussed next year.

Updating income tax brackets was a campaign promise made by Mr Bolsonaro in 2018.

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