Inequality: 10% of taxpayers concentrate 51% of income in Brazil

A report released by the Ministry of Finance outlines the disparities in income and wealth distribution among the Brazilian population. The study examined data from individual income tax filings for 2021 and 2022.

According to the survey, 10 percent of income tax filers accounted for 51 percent of the country's total income in 2022. Meanwhile, slightly over half of the tax filers with lower incomes collectively contributed to 14 percent of the total earnings. The year 2022 saw approximately 38.4 million taxpayers file their income tax returns, representing 35.6 percent of Brazil's economically active population.

Individuals residing in Brazil are required to file income tax returns if they earned at least BRL 28,559.70 in taxable income, BRL 142,798.50 in gross income from rural activities, or BRL 40,000 in income, including both taxed and untaxed sources, during the base year. Additionally, individuals with assets and rights exceeding BRL 300,000, those who realized capital gains from asset or rights sales, or those who opted for the exemption on real estate sales followed by the acquisition of another property within 180 days, are also obligated to declare their income.

Wealth

In terms of wealth, defined as the total of assets and rights declared in income tax, the concentration is even more pronounced. The wealthiest 10 percent of the population account for 58 percent of the country's total wealth.

The survey reveals that the largest income tax exemption is on profits and dividends, constituting the earnings distributed to company shareholders, which accounts for 35 percent of the total exemptions. There is an ongoing debate in Congress about reducing this exemption rate. The second most substantial exemption is for small and micro companies that choose the Simplified Taxation System.

Another notable finding from the study is that higher incomes correlate with higher deductible expenses, including those for medical services and health insurances, dependents, and pensions. The largest share of deductions is attributed to medical expenses, constituting 38 percent of the total, followed by Social Security deductions at 32 percent. Notably, the wealthiest 10 percent of the population account for 41 percent of the total value of all expenses deductible from income tax.

The Federal District boasts the highest average income in the country, surpassing BRL 14,000 per month, followed closely by the states of São Paulo and Rio de Janeiro. In contrast, Maranhão has the lowest average income, just slightly exceeding BRL 7,000 per month.

The income tax study also highlights gender inequality in income distribution. Despite women representing 51 percent of the country's working-age population, only 43 percent of them filed a tax return. Furthermore, among all income tax filers, women constitute only 37 percent, while men make up nearly 63 percent.

*Pedro Rafael Vilela - contributor