Months after Congress killed its first attempt to tax Brazil’s most popular tax-exempt investment bonds, the Lula government is quietly preparing a second try. This time, the weapon of choice is the IOF — a financial transactions tax that can be imposed by presidential decree, bypassing the legislative battle that sank the original plan.
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What Failed — and What’s Coming
In June 2025, the government published Provisional Measure 1,303 as a substitute for a disastrous IOF rate hike that had triggered a market selloff. The measure proposed a 5% income tax on bonds tied to real estate and agribusiness — instruments known as LCI, LCA, CRI and CRA — that had been completely tax-exempt since creation. Congress gutted the plan, and the measure expired on October 8 without a floor vote, leaving Brasília with an estimated R$35 billion ($6.7 billion) revenue hole for 2026.
Now market participants report the Finance Ministry is studying whether to apply IOF directly on these bonds. The Ministry declined to comment, which observers interpreted as confirmation that studies are underway.
Why These Bonds Matter
These four instruments form the backbone of private financing for Brazil’s two most important economic sectors. LCIs and LCAs are bank-issued credit letters backed by real estate and agribusiness loans. CRIs and CRAs are receivables certificates that function as direct financing for housing developments and farm operations. Their tax-free status was designed to attract private capital into sectors that would otherwise depend on scarce public funds.
Why IOF Is the Government’s Shortcut
The IOF route is attractive because it requires only a 90-day notice before collection begins, unlike income tax changes that need congressional approval a full year in advance. The government could theoretically start collecting before 2027, though lawyers are already questioning the legality of using a regulatory tax for revenue purposes.
A Million Families at Risk
The industry reaction has been fierce. Luiz França, president of Abrainc, the developers’ association, called the proposal a “perfect storm” that would raise capital costs in a sector already squeezed by 15% interest rates. Abrainc projects the resulting mortgage cost increase could disqualify between 9% and 24% of families currently eligible for financing — potentially over one million households. That warning carries weight in a country where the housing deficit stands at roughly six million units.
Real estate lawyer Carlos Ferrari argued the IOF is constitutionally a liquidity-control instrument, not a revenue tool. Marcelo Michaluá, CEO of RB Asset, warned that applying the tax to existing portfolios could trigger forced selling, while raising negligible revenue relative to the economic damage.
Fiscal Pressure Behind the Push
The repeated attempts tell a broader story about the Lula administration’s fiscal pressures. After the IOF debacle, the expired provisional measure, and an income tax reform that raised the zero-tax threshold to R$5,000 per month ($960) while creating a 10% dividend tax, the government is still searching for ways to close a persistent budget gap. For millions of Brazilian families hoping to buy their first home, the uncertainty may be the biggest cost of all.
For more context, read Brazil’s Morning Call and the Ibovespa market report.
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