Brazil's government eyes tax tweaks to boost revenue -sources

FILE PHOTO: People walk near the Ministry of Finance building in Brasilia

By Marcela Ayres and Bernardo Caram

BRASILIA (Reuters) - Brazil's Finance Ministry is preparing a new set of initiatives to increase tax revenue, including a review of deductions and exemptions for income tax on individuals, according to three sources familiar with the matter.

The potential measures aim to shore up Brazil's fiscal stability as leftist President Luiz Inacio Lula da Silva seeks to direct more money to the poor and state-backed projects.

They include the taxation of company profits and dividends as well as changes in the taxation of certain investment funds, said the sources, who spoke on condition of anonymity as the discussions are not public.

The Finance Ministry did not immediately respond to a request for comment.

Previous administrations have tried - and failed - to restrict income tax deductions, which allow taxpayers to use proof of certain expenses, such as medical and educational costs, to reduce their tax bills. Such measures overwhelmingly benefit higher-income individuals.

The government estimates it is set to lose 51.1 billion reais ($10.2 billion) from exemptions, along with 31.3 billion reais from deductions in its 2024 budget bill.

Lula has criticized deductions for healthcare expenses.

In December, a month before taking office, he highlighted the challenges faced by the poorest in accessing specialized treatments, comparing that with his own ability to undergo annual exams and deduct the associated expenses from his income tax, deeming it a "contradiction."

The finance ministry's revenue chief Robinson Barreirinhas said last month that the government was working on additional revenue measures to be announced in the second half of this year. He mentioned "very solid and consistent" studies regarding the potential to boost annual revenue by 155 billion reais as a result of combined efforts.

The revenue increase is a crucial pillar of the new fiscal framework presented by the government to provide a sustainable path for public debt.

Finance Minister Fernando Haddad has already announced that the government would crack down on Asian e-commerce giants and online sports betting and curb some company tax benefits to raise more than 100 billion reais.

($1 = 5.0033 reais)

(Reporting by Marcela Ayres and Bernardo Caram, Editing by Gabriel Stargardter and Bill Berkrot)