Brazil’s Lawmakers Challenge New Tax Increases on Loans and Investments

Brazil’s Chamber of Deputies has taken a strong step to block a new government rule that would make borrowing and investing more expensive.

On June 16, 2025, lawmakers voted 346 to 97 to fast-track a bill that could cancel the government’s recent increase in the IOF, a tax charged on financial transactions like loans, investments, and some types of insurance.

The government introduced this tax hike to help raise more money for its budget and meet fiscal targets. The new rules raise the tax on online betting companies from 12% to 18%.

They also increase the tax on profits for fintech companies from 9% to 15%, putting them on the same level as traditional banks. In addition, the government removed tax breaks for investments in real estate and farming credit bills (LCI and LCA), which had previously been tax-free.

The decree also set a new flat IOF rate of 0.95% on all business loans and introduced a 3.5% IOF on certain foreign exchange transactions. Most of these changes started on May 23, 2025.

Business Groups Warn Tax Hike Could Add R$20 Billion in Costs

Business groups, including national confederations representing commerce, industry, agriculture, insurance, cooperatives, and financial institutions, estimate the tax hike could add nearly R$20 billion (about $3.8 billion) in extra costs this year.

They warn that these higher taxes will make loans and investments more expensive, discourage companies from borrowing and investing, and complicate Brazil’s already complex tax system.

These groups argue that the IOF should help regulate financial markets, not just raise money for the government. Many lawmakers, even some from parties that usually support the government, agree with these concerns.

They argue that the government should focus on cutting its own spending instead of raising taxes. Some deputies are also frustrated about delays in government payments for local projects.

After facing strong criticism, the government reduced the fixed IOF rate on business loans from 0.95% to 0.38%. However, most of the other tax increases remain in place. The Chamber of Deputies will soon decide whether to fully cancel the tax hike.

If the tax is cancelled, the government may have to find other ways to balance its budget, such as cutting spending or proposing new fiscal reforms. This debate matters because higher taxes on loans and investments can affect everyone.

If borrowing money gets more expensive, it can slow down the economy, make it harder for businesses to grow, and raise costs for consumers. The outcome will shape how Brazil manages its finances and how easy it is for people and companies to access credit in the future.