IR: how much is left in the pocket of someone who earns R$5,000 if the exemption passes in Congress?

One of the points that has drawn the most attention to the proposal announced by the government last Wednesday (27) is the tax exemption for those with a salary of up to R$5,000 per month. The measure still needs to be approved by Congress and will only be discussed in 2025 to come into force in 2026. If the project continues as planned by the government, 36 million taxpayers should be exempt from Income Tax, according to the National Association of Tax Auditors of Federal Revenue (Unafisco).

However, to better understand how this charge is made today and what amount would actually be left in the pockets of these workers if the measures are approved by parliamentarians, the InfoMoney sought help from accountants and lawyers to better explain the matter.

How it works today

Firstly, you need to understand how the tax is charged, which includes a progressive rate table. This is because Income Tax only applies to what exceeds the exempt amount of R$ 2,259.20, considered the minimum for a person to live and guarantee fundamental items such as health and education. Amounts above this start paying tax, but in a staggered manner, as explained by the executive director of Macro Contabilidade e Consultoria, Wesley Santiago.

See the table:

Calculation base (R$)	rate (%)
Up to R$2,259.20	0
From R$2,259.21 to R$2,826.65	7,5
From R$2,826.66 to R$3,751.05	15
From R$3,751.06 to R$4,664.68	22,5
Above R$4,664.68	27,5

Source: Ministry of Finance

How much does the worker earn

Therefore, according to the director of Macro Contabilidade e Consultoria, workers who earn up to two minimum wages are already exempt from Income Tax, and there will be a more significant impact for those who earn between R$2,824.00 and R$5,000.00 per month, which currently pay on a progressive scale from 7.5% to 27.5%.

In a simulation, if a person earns R$5,000.00 per month, they currently have a discount of approximately R$335.15 in income tax every month, and, after the exemption measure comes into effect, this amount will no longer be deducted. , effectively increasing the net monthly receipt amount.

See details of this simulation below:

• Salary: R$5,000.00
• Simplified discounts (this or legal discounts must be used, such as: INSS, dependents, among others – whichever is more advantageous to the worker): R$ 564.80
• Base on which IR will be charged: R$ 4,435.20
• Rate: 22.5%
• IRPF that is no longer paid: R$ 335.15

Delicate gear

However, this tax waiver still needs to be approved by Congress, which has already said that it will only evaluate this next year, voting this year only on the part of the plan that cuts government spending. Taxing earnings above R$50,000 is also likely to face resistance from parliamentarians, which indicates that it will not be that simple.

However, with 36 million Brazilians having more money in their pockets, this would mean a good injection of resources into the economy. Thus, what the government can lose on one side it can also gain on the other, with greater consumption. “There is the issue of inflation, which can reduce the purchasing power of these people, as well as the need for new interest increases, which also needs to be evaluated”, analyzes Santiago.

Salary bonus

Among other measures, the government also changed the salary bonus, which should have an important repercussion, because those who earn two minimum wages are currently entitled to a salary bonus, and the government plans to cut this until it ends up paying this bonus only to who receives 1.5 salary.

IR exemption for illness

Another controversial front will be the end of Income Tax exemption for people with serious illnesses who have a monthly income of more than R$20,000. The health expenses that this person has will continue to be deductible, this does not change, according to Santiago, but the exemption will be limited depending on the person’s income.

“The measures that the government took aim at social justice, exempting those who earn less and taxing those who earn more. But the point is to know whether these waivers will be covered by the cuts so that there is no imbalance”, said the executive director of Macro.

What tax experts say

Lawyer Jean Pierre Moreau, partner at Moreau Advogados, agrees that raising the Income Tax exemption range to R$5,000 per month, combined with the increase in taxation on income above R$50,000, sounds like a step in direction of social equity.

“However, a closer analysis reveals the weaknesses of this apparently progressive approach. Expanding the exemption offers deserved relief to the middle class. However, relying solely on increasing the burden on the highest incomes, a narrow group on the fiscal spectrum, risks exacerbating the public deficit, especially in a country where the tax base is already narrow and deeply dependent on regressive taxes on income. consumption,” he says.

For him, the lack of a broad and integrated reform could worsen the flight of capital and investments, further damaging Brazil’s competitiveness and economic growth: “Real tax justice requires more than symbolic measures. Haddad seeks balance, but without a more comprehensive fiscal plan, his proposal could end up reinforcing the very imbalance he is trying to correct.”

Expectation and reality

Therefore, lawyer Ana Carolina Monguilod, professor at Insper and partner at CSMV Advogados, assesses that tax reform is very important and complex and should continue to raise discussions. “We were waiting for a global tax reform and this income tax reform came,” he says.

According to her, it was necessary to see a reduction in IRPJ and CSLL rates, which in nominal terms are the highest in the world, in a nominal corporate taxation of 34%. “What we intend to do now, with this taxation of the large income of individuals who earn earnings of more than R$50 thousand per month, is, through oblique means, to tax dividends without reducing IRPJ and CSLL. So, Brazil will have very high taxes on entrepreneurial activity. You will end up having a combined tax of 34% plus 10%”, he explains.

Furthermore, the expected taxation will also affect all those securities in the financial and capital markets that are currently exempt, such as LCI, LCA, CRA and CRI, according to Ana. “They are exempt for certain reasons, and these exemptions should be reviewed individually , and not by an oblique 10% taxation that apparently will not discern what type of income is being earned. It is a very bad signal for the market and for investors.”

According to lawyer Eduardo Krutman, head of the tax area at RMMG Advogados in São Paulo, the agenda ends up entering a broader and more conceptual discussion on how to promote social justice through the tax system and what is the most efficient way to achieve it. that.

“Perhaps a more interesting approach would be to create an individual taxation system that taxes only what is an effective asset increase, or mechanisms that encourage the transmission of resources from the most favored to the least favored classes, such as, for example, full deductibility these values ​​of the tax calculation base. This is what happens in some developed countries, such as the United States”, he explains.

The jurist also states that there is a global movement to impose minimum taxation on those people who historically enjoy a very low tax burden. “This is the case of BEPS (Base Erosion and Profit Shifting), mentioned by minister Fernando Haddad, which is an initiative of all OECD member countries (not just Brazil). Given this, the ‘escape’ options for large taxpayers are becoming increasingly scarce.”