President Lula’s bet that he could cut taxes for Brazil’s middle class while raising more money overall just got its first positive datapoint. Federal tax revenue reached R$325.8 billion ($62.9 billion) in January, the highest monthly haul since the Revenue Service began keeping records in 1995. The 3.56% real increase came in the first month under a sweeping income tax reform that Lula signed into law in November, widening exemptions for workers earning up to R$5,000 per month while imposing new charges on dividends, capital income and higher earners.
Where the Money Came From
Three policy changes drove the headline number. The IOF, Brazil’s tax on financial transactions, generated R$2.6 billion more than in January 2025 — a 49% jump resulting from rate increases implemented by the federal government last year. Income tax on capital gains surged 32.6% to R$14.7 billion, boosted by higher collections on fixed-income securities, investment funds and a popular shareholder compensation mechanism called interest on equity (JCP), whose withholding rate was raised from 15% to 17.5% starting in January.
The government also began collecting a new 10% withholding tax on all dividends remitted abroad and on domestic dividends above R$50,000 received by individuals from a single company. The Revenue Service did not disclose a separate breakdown for these new levies, making it difficult to isolate their precise contribution to the record total.
The Sports Betting Windfall
Perhaps the most dramatic line item was sports betting. Revenue from gambling and betting taxation leapt from R$55 million in January 2025 to R$1.5 billion in January 2026 — a nominal increase of 2,642%. The comparison is somewhat misleading, however: Brazil’s regulated betting market only launched on January 1, 2025, and the companies that began operating that month did not actually remit taxes on their gross gaming revenue until February. The Revenue Service acknowledged that an effective year-over-year comparison will only be possible once February 2026 data is available. A separate accounting change — Loterias Caixa taking over lottery tax collection from its parent company — also inflated the headline figure.
Lula’s Fiscal Balancing Act
The record collection matters politically as much as fiscally. Lula is heading into an October reelection campaign with polls showing him in a statistical tie against Senator Flávio Bolsonaro. His core pitch — that he can protect lower earners while making the wealthy pay more — depends on the revenue math adding up. The income tax reform, enacted as Law 15,270, expanded the zero-tax bracket for monthly earnings up to R$5,000 while introducing graduated taxes on dividends and high incomes. The government estimates the package will raise roughly R$20 billion in additional annual revenue.
What to Watch
January is a structurally strong month for Brazilian tax collection, and one record does not guarantee a full-year trend. The government faces rising social spending commitments that prompted the tax overhaul in the first place. The betting tax, which is set to rise progressively from 12% to 15% of gross gaming revenue by 2028 under a law signed in December, will become a more reliable revenue source once the regulated market matures. For now, the January figures offer Lula a useful talking point: that his tax reform is working as designed, collecting more from capital and the wealthy while relieving the burden on wage earners. Whether the numbers hold through an election year — and whether voters notice — is an entirely different question.