Lula Proposes MEI Tax Limit Hike, Sparking Retail Backlash

President Luiz Inácio Lula da Silva has officially submitted a complementary bill (PLP) to Congress aimed at raising the annual revenue cap for Microentrepreneurs (MEIs). Under the proposed legislation, the current revenue threshold of R$ 81,000 will rise progressively to R$ 110,000 in 2027 and reach R$ 140,000 by 2028. The bill also expands labor rules, allowing individual microentrepreneurs to hire up to two employees, up from the current limit of one.

Despite the government's attempt to ease the tax burden on small businesses, retail and small business lobbies have strongly criticized the proposal. The Confederação das Associações Comerciais e Empresariais do Brasil (CACB) and other business coalitions argue that the bill is a partial measure. By focusing exclusively on MEIs and excluding the broader Simples Nacional brackets, critics warn the plan will cause severe corporate fragmentation, forcing growing businesses to artificially split their operations to avoid entering much higher tax brackets.

The Ministry of Finance has resisted expanding the tax-regime adjustments to the entire Simples Nacional framework, citing a projected fiscal revenue loss of approximately R$ 50 billion per year. Meanwhile, business leaders argue that the thresholds have been frozen since 2018 and require an immediate correction for inflation. Market participants are monitoring the legislative debate closely, as distortions in the tax regime could impact retail equities on the B3 (IBOV) and influence domestic fiscal dynamics, keeping pressure on the Brazilian Real (USD/BRL).