Brazil’s IOF Tax Overhaul: Politics, Pushback, and the Real Impact on Business

Brazil’s federal government published a sweeping executive order on June 11, 2025, revising the IOF (Tax on Financial Transactions) and investment taxes.

The Finance Ministry, led by Fernando Haddad, coordinated with Congress after a fierce backlash against a planned IOF hike that would have sharply raised the cost of credit and investment for businesses and individuals.

The new order, which requires congressional approval, walks back some of the most controversial increases and introduces a new set of targeted measures.

The original May 2025 plan aimed to raise the IOF on credit, foreign exchange, and insurance transactions. The government wanted to boost public revenue, projecting up to R$41 ($7.4) billion in 2026.

The plan included an IOF rate hike for credit transactions from 1.88% to 3.9% for legal entities, plus a new 0.95% flat rate. It also reclassified supplier financing operations, known as “risco sacado,” as taxable credit.

The market and lawmakers immediately pushed back, warning of higher borrowing costs, reduced credit availability, and possible price hikes for consumers.

Facing over 20 legislative proposals to overturn the hike and public opposition from the Central Bank, the government quickly revised its approach. The June decree eliminates the fixed IOF component on “risco sacado” operations, keeping only a daily rate of 0.0082%.

This move cuts the IOF burden on these transactions by about 80%, directly lowering costs for companies that rely on supplier financing to manage cash flow. The government also maintained a special reduced IOF rate for small businesses under the Simples Nacional regime.

To offset the lost revenue, the order introduces a flat 17.5% income tax on investment income and capital gains, replacing the previous sliding scale of 15% to 22.5%.

Investments previously exempt from income tax—like LCI, LCA, CRI, CRA, and incentivized debentures—now face a 5% tax. The tax on interest on equity (JCP) payments rises from 15% to 20%.

The government also increased the tax on betting companies’ gross gaming revenue from 12% to 18%. These measures target higher-income investors and sectors previously shielded from taxation.

Projections now suggest the government will collect about R$10 billion in 2025 and R$20 billion in 2026 from the new package, roughly half the original estimate.

Economists warn the new IOF and investment tax rules could have an effect similar to a 25 basis-point hike in the policy interest rate, at least in the short term, by raising the cost of credit and reducing liquidity.

The real story is a government forced to balance fiscal needs with political and economic realities. The rollback of the IOF hike on supplier financing responds to business sector concerns and aims to protect credit flows, especially for small and medium-sized companies.

The new taxes on investments and betting seek to spread the fiscal burden more evenly, targeting areas that can absorb higher costs. The government’s approach signals a pragmatic, mercantile response to domestic pressures, rather than a globalist alignment.

The outcome matters for anyone with a stake in Brazil’s credit markets, investment landscape, or public finances.

For the full picture, see our Brazil Tax Reform: Complete Guide.

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