Congress Blocks Lula’s IOF Tax Hike in Historic First Rejection of Presidential Decree in 30 Years

Brazil’s Congress has stopped President Lula’s plan to raise a tax called the IOF, which applies to things like loans and currency exchanges.

Lawmakers in the lower house voted 383 to 98 against the tax increase, and the Senate quickly agreed. This is the first time in over 30 years that Congress has blocked a presidential tax decree.

It shows that lawmakers are willing to push back against the president when they disagree. President Lula’s government wanted to increase the IOF to bring in more money for the country’s budget.

The government said this would help fill a gap in public finances and avoid bigger spending cuts. The Finance Ministry expected the higher tax to raise about 61.5 billion reais by the end of next year.

The plan would have made it more expensive for companies and small businesses to borrow money from banks, raising their costs at a time when interest rates are already high.

Business groups and many politicians quickly criticized the plan. They argued that higher taxes on loans would hurt businesses, especially smaller ones that rely on bank credit.

Some lawmakers said the government did not explain the plan well or discuss it with Congress before making the change. The government even rolled back part of the tax increase for foreign investors after markets reacted negatively.

After Congress blocked the tax hike, the government now faces a bigger budget gap. The Finance Ministry says this could mean at least 10 billion reais less in revenue this year.

Experts warn that the government may have to freeze more spending or find new ways to raise money. This situation also raises concerns for investors and businesses, who worry about how Brazil will handle its budget problems in the future.

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