Brazil hikes income tax exemption to reflect higher minimum wage

BRASILIA (Reuters) -Brazil's government raised the individual income tax exemption threshold to the equivalent of two minimum wages, updating a benefit that was in place last year to reflect this year's increase in the minimum wage.

The measure was signed by President Luiz Inacio Lula da Silva via an executive order on Monday. It will take effect in May and cost the government 3.29 billion reais ($561 million) in foregone revenue this year, the Finance Ministry said in a statement.

With the change, Brazilians earning up to 3,036 reais per month will be exempt from paying income tax, up from the current threshold of 2,824 reais.

According to the Finance Ministry, if any compensatory measures are needed to offset the revenue loss and ensure compliance with this year's zero primary deficit target, the government will make adjustments in its bimonthly revenue and expenditure report, which is set to be published in May.

The government's economic team had previously said leftist Lula intended to keep the exemption level at two minimum wages in 2025, although the provision was not formally included in this year's budget law.

Last year, when the budget bill was submitted to Congress, Tax Revenue Secretary Robinson Barreirinhas said additional compensation would be needed to maintain the exemption at that threshold.

The government has also sent Congress a bill last month to raise the income tax exemption level to 5,000 reais starting next year, with the revenue gap expected to be covered by new levies on high earners and on profits and dividends sent abroad.

The proposal still requires lawmakers' approval and is one of Lula's key bets to boost his declining approval rates.

($1 = 5.8651 reais)

(Reporting by Marcela Ayres; Editing by Marguerita Choy and Mark Porter)