Lula government has record IOF revenue in June after increasing tax
The government of Luiz Inácio Lula da Silva (PT) achieved record revenues from the Tax on Financial Transactions (IOF) in June thanks to the increase in tax rates that came into effect that month – and which were later overturned. R$8 billion was collected, the highest amount in 20 years.
The tax increase occurred in May, through a decree by President Lula. At the time, the Ministry of Finance raised the tax on credit contracts for companies and individual microentrepreneurs by more than 100%. There was also an increase in the IOF on foreign exchange transactions and private pension plans.
However, Congress reacted and revoked the decree on June 25. Soon after, Justice Alexandre de Moraes, of the Federal Supreme Court (STF), suspended the decisions of the Executive and Legislative branches and scheduled a conciliation between the branches. This occurred after the government appealed to the Supreme Court, via the Office of the Attorney General (AGU), seeking to overturn Congress' decision. The conciliation is scheduled for June 15.
IOF will be decided in conciliation hearingThe Lula government argues that taxation via IOF will help meet fiscal targets. Otherwise, it claims it would need to cut spending, including parliamentary amendments – which would be a way to pressure Congress.
Now, the Executive, Legislative and Supreme Federal Courts are preparing to define a negotiated solution in the conciliation agreed upon by Moraes. Congress should propose a reduction in exemptions and spending cuts. The government is possibly studying a way to compensate for part of the loss of revenue.
The IOF is levied on credit, foreign exchange, insurance and financial investment transactions. Therefore, its increase impacts consumers and companies. Thus, when someone takes out a loan from a bank, they are taxed. At the same time, it also acts as a regulatory tool, reducing speculative credit, for example.
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