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The decision by the Chamber of Deputies on Wednesday night (25) to overturn the decree that raised the IOF (Tax on Financial Transactions) rates brought immediate relief to taxpayers, but raised a new alert in the federal government's fiscal field. The measure, which was part of the strategy to increase revenue to ensure compliance with the fiscal framework targets in 2025 and 2026, was revoked after intense political pressure and criticism from various sectors of the economy.
With the rejection of the proposal, individuals and legal entities escape a significant increase in credit, foreign exchange and private pension transactions — which in practice represents a lower financial cost for consumers and companies. However, the reversal of the decree poses an additional challenge to the economic team, which now needs to find alternative sources of revenue so as not to compromise the fiscal target established by the government.
Experts point to risks of instability
According to tax specialist Mary Elbe Queiroz, president of Cenapret, the measure “brings immediate relief, but does not eliminate fiscal tension”. For her, the government will be forced to present structural alternatives, since resorting to increasing the IOF via decree was one of the few possibilities for raising taxes without Congressional approval.
ESPM administration professor Patricia Andrade reinforces this view. “The loss of revenue compromises the closing of the 2025 budget and may have repercussions until 2026. Fiscal instability tends to compromise the confidence of economic agents and the effectiveness of the anti-inflationary policy”, she states.
According to economist Alexandre Gaino, also from ESPM, the decision signals that the Executive Branch is facing increasing difficulties in meeting its fiscal goals without resorting to unpopular maneuvers. “The repeal of the decree puts pressure on future interest rates and may have effects on the exchange rate and inflation. The scenario is one of increasing perception of fiscal risk”, he highlights.
Impact on taxpayers and the market
PagBrasil CEO Ralf Germer points out the direct impact of the decision on the daily lives of companies and consumers. “The suspension of the IOF increase prevents a series of financial transactions from becoming more expensive. This represents an important boost for the production sector and consumption at a time of high interest rates.”
A survey by the Brazilian Institute of Planning and Taxation (IBPT) had projected that, with the increase in the IOF, Brazilians would have to work two more days in 2025 and up to four additional days in 2026 just to pay the tax.
The decree and the political reaction
The decree that increased the IOF was announced in May, as part of a package of measures to balance public accounts. The estimate was that an additional R$20.5 billion would be collected this year, in addition to a R$31 billion cut in expenses by ministries. The proposal, however, faced immediate resistance from the financial market, business sectors and Congress.
The negative repercussions forced the government to recalibrate the measure a few weeks later, reducing some rates — such as those for corporate financing and risk-taking operations. Even so, political pressure intensified, with the Speaker of the Chamber of Deputies, Hugo Motta (Republicans-PB), indicating majority support among members of parliament for the overturning of the decree, which ended up being implemented with the vote on the Legislative Decree Project (PDL).
The Minister of Finance, Fernando Haddad, had defended the increase as a form of “tax justice,” arguing that the measure corrected distortions in financial investments and international operations. However, with the defeat in the Legislature, the government is now trying to contain the damage.
New measures to offset losses
To mitigate the impact of the overturn, the Executive announced a series of new measures, such as the taxation of currently exempt investments, increased taxation on online gambling and financial institutions, and changes to the rules for distributing Interest on Equity (JCP).
Despite efforts to negotiate with party leaders, the new proposals are also facing resistance from economic sectors and parliamentarians, putting the effectiveness of the fiscal compensation package at risk.
With the increase in the Selic rate to 15% per year, as announced by the Central Bank on June 18, Brazil now ranks second among the highest real interest rates in the world. The already challenging scenario requires the government to have political skill and economic creativity to keep the public accounts in order without sacrificing growth or social stability.
DFATOS • Economy and Politics | June 2025
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