Brazil government raises IOF tax to pay for new Family Grant

RIO DE JANEIRO, BRAZIL – Having failed to resolve the court-ordered federal debt impasse, President Jair Bolsonaro issued a decree increasing the IOF tax rate to finance both the increase of “Auxílio Brasil” (Brazil Aid) and the redesign of the “Bolsa Família” (Family Grant) program, which has not yet come into force.

This decree will alter the rates on the tax on financial transactions, exchange, insurance, and securities known as IOF, imposed on financial operations carried out by legal entities and individuals.

According to a statement from the Planalto Palace, the new rates will come into force between September 20 and December 31, 2021.

“The measure will generate an increase in tax collection estimated at R$2.14 billion. This amount will allow the expansion of the amount allocated to the ‘Auxílio Brasil’ social program, whose new value will come into force in 2021,” explains the Presidential office in a statement.

The new social program aims to assist some 17 million families, compared to the 14.6 million currently served by “Bolsa Família”. This measure violates Bolsonaro’s 2018 campaign pledge not to increase taxes. Instead, he had signaled that he would cut taxes.

There is great pressure on the government to expand social measures this year. The priority focus are families currently served by the “Auxílio Emergencial” (Emergency Aid), designed to provide support during the pandemic, which ends in October.

The President’s Office reports that, since it is a decree, the IOF changes will take immediate effect. The effective increase of “Auxílio Brasil,” on the other hand, will be subject to a specific legislative measure.

OTHER CHANGES

According to the Presidential Office, the change in the IOF tax rate, in addition to the expansion of “Auxílio Brasil,” will allow for an increase in the import quota of goods for Science and Technology, to enable research to continue in Brazil.

“The measure will particularly enable research projects, development and production of coronavirus vaccines in progress at Fiocruz and the Butantan Institute, which are currently the main beneficiaries of this tax regime,” the government claims.

The measure also allows the government to eliminate the PIS/Cofins (Program of Social Integration/Contribution for the Financing of Social Security) tax levied on corn imports. The Planalto’s assessment is that this “should have a positive impact on the cost of food.”

The change in the import quota for science and technology goods and the import of corn will be implemented directly by the Ministry of Economy.