How the lack of correction of the IR table increased the real tax burden in Brazil

Taxation

How the lack of correction of the IR table increased the real tax burden in Brazil

Freezing the Income Tax table increases the real tax burden and violates constitutional principles of tax justice.

Eduardo Lourenço
Doctor and master in Constitutional Law and Master of Laws (LLM) in Tax Law. Partner at Maneira Advogados.

In 2022, during the electoral campaign, the then candidate Luiz Inácio Lula da Silva promised that, in his new government, anyone earning up to R$5,000 per month would be exempt from Personal Income Tax. A completely understandable proposal that was already included in bills presented by some parliamentarians. This is because the exemption limit remained frozen at R$ 1,903.98 since 2015, and the accumulated gap compared to inflation measured by the IPCA already exceeded 60%. The problem is that, in 2025, this promise lost the economic effect it had in 2022. The historical neglect in updating the table became, in practice, a silent increase in the tax burden on Brazilian workers.

The Income Tax table has practically not kept up with the cost of living over the last two decades. Between 2007 and 2014, average adjustments were just 4.5% per year, below inflation in several periods. From 2015 to 2022, there was no correction. During this period, the IPCA accumulated more than 60%, the minimum wage grew 53% and the Selic rate went through large fluctuations, reflecting the cyclical behavior of monetary policy. The result is the constant loss of purchasing power in the exemption range, which no longer represents a minimum subsistence value and begins to affect taxpayers with medium and even low incomes.

It is true that freezing the Income Tax table in periods of reduced interest and inflation, as occurred between 2018 and 2020, produces less severe effects on the average taxpayer. With the IPCA below 4% and the Selic on a downward trajectory, the inflationary impact on nominal income is limited, softening the loss of purchasing power in the exemption range. In this context, fiscal inertia does not exactly constitute a confiscatory effect, although it continues to represent a violation of citizens' rights, as it keeps the calculation base out of date in relation to the real cost of living.

In any case, historical data clearly demonstrates the scope of this distortion. In 2016, the gap in the table already exceeded 18% when compared to 2007. In 2022, it reached 61.5%, and even after the corrections made in the following years, the real deficit is still around 47%. In practical terms, half of the real value of the exemption range was eroded by inflation, without the State having adopted any permanent updating mechanism. The taxpayer, therefore, started paying more tax not because he had higher income, but simply because inflation was not compensated by fiscal policy.

This omission is not neutral. When the government freezes the Income Tax table, it increases revenue in a disguised way, without formally changing the rates. This is a known effect: if salaries are nominally adjusted for inflation (or very close), more people exceed the exemption bands and become taxed, although their purchasing power has not changed. The State, in this context, benefits from inflation and transforms the income tax into an instrument of erosion of real income from work. It is a form of taxation by inertia, in which the absence of updating the table operates as an indirect tax increase.

In 2007, the exemption range was R$1,313.69. If it had been fully corrected by the IPCA, in 2025 it should be around R$3,870.00, and not the R$2,428.80 projected by the current table. The gap is approximately 40% and is reflected in other tax brackets. Furthermore, the promise of exemption of up to R$5,000, made in 2022, was equivalent to around 5.8 minimum wages at the time. To maintain purchasing power in 2025, this value should be readjusted to something close to R$5,800 to R$6,000 per month. Literally fulfilling the R$5,000 promise, therefore, would mean delivering around 15% less than what was announced in real terms.

The paradox is evident. Between 2007 and 2025, the minimum wage had an average real gain of 2.7% per year, while the Income Tax table lost almost half of its real value. The same State that promises to protect labor income is the one that most contributes to eroding it. Tax policy, by ignoring the need for periodic updating, becomes a regressive taxation mechanism, precisely penalizing salaried workers. In distributive terms, the result is the opposite of what the progressive taxation system should produce.

The Federal Constitution, in its article 150, item IV, prohibits the confiscatory effect of taxes, and article 145, first paragraph, imposes the principle of contributory capacity. Taxing nominal inflation, as if it were a real increase in income, is violating both. Correcting the Income Tax table is not a political option, but a constitutional requirement and an imperative of tax justice. The lack of correction is, in itself, an act of renunciation of these principles, as it transfers the burden of financing state inflation to the taxpayer.

The creation of an automatic table update rule by IPCA is the logical and necessary step. Just as the minimum wage and social security benefits are readjusted periodically, the Income Tax table should also have its annual adjustment guaranteed by law. This measure would avoid the political use of inflation as a revenue instrument and would provide predictability to fiscal policy, reestablishing the balance between revenue and social justice.

The proposal to expand the exemption to R$5,000 is positive, but insufficient. Correcting the table at face value without reviewing your methodology is just postponing the problem. To fully recover the purchasing power lost since 2015, the exemption range should now be close to R$6,000, and more important than a new isolated adjustment is the creation of a permanent update policy that covers the entire table. The State cannot continue to finance itself through the erosion of taxpayers' income and must, first of all, rethink spending.

The gap in the Income Tax table is more than an economic indicator: it is a mirror of the incoherence between the discourse of social justice and fiscal practice. Updating it is not a concession, but the minimum necessary to preserve the legitimacy of the tax system and the citizen's trust in the good faith of the State. Fulfilling the promise of R$5,000 would be a start, but correcting the structure would ultimately be an act of constitutional responsibility.

https://www.congressoemfoco.com.br/artigo/113044/como-a-falta-de-correcao-da-tabela-do-ir-ampliou-a-carga-tributaria