The Chamber of Deputies and the Senate are working hard this Wednesday to vote on Provisional Measure 1,303/25, also known as the IOF alternative MP, before it expires at midnight.
Without parliamentary approval of the measure by the deadline, President Luiz Inácio Lula da Silva would suffer a political and budget defeat.
The project, sponsored by Congressman Carlos Zarattini (PT-SP), is seen as essential for balancing the public accounts of the country for 2026 and 2027, after the government gave up on the increase in the Tax on Financial Transactions (IOF).
Haddad is hoping to shore up revenue and show his commitment to fiscal discipline with the measure, which represents a small part of his ambitious revenue package.
The joint committee of Congress approved the MP by 13 votes in favour and 12 against on Tuesday, after weeks of negotiations.
Today at the plenary votes sitting in both chambers, its future will be determined.
A Balancing Act between revenue and economic sectors
Zarattini said the revision of the text “ensures the sustainability of public accounts without hurting productive sectors.”
His changes show the political sensitivities around new taxes and the government’s effort to keep exemptions on the sectors it believes are vital to growth.
The first version expected new revenue of R$20.9 billion and spending cuts of R$10.7 billion in 2026. But those numbers were whittled down during negotiations.
The modifications made by the rapporteur left untouched the exemptions on income tax for real estate credit letters (LCI), agribusiness credit letters (LCA) and incentivised debentures.
He also rescinded a previous idea to raise taxes on internet gambling sites.
Consequently, Minister Fernando Haddad now estimates net revenue of “at least R$17 billion” in 2026 — less than initially projected but still material when it comes to the country’s fiscal targets.
Betting regularisation to offset revenue losses
As a measure to compensate for the loss of income tax, Zarattini rolled out a betting regularisation proposal called RERCT Litígio Zero Bets.
The initiative applies to businesses that were functioning without a license from 2014 to 2024, allowing them to regularise their business activity.
As part of the proposal, the firms would be taxed 15% plus a fine on 100% of the amount.
The program could bring in up to 5 billion reais ($1.0 billion) in short-term extra revenue and give a breather to the fiscal accounts while regulating an attractive, but in practice unregulated sector, Haddad said.
It is worth noting that the move also reflects the growing dependence of the government on tax money from gambling as a source of budget revenues.
Recent efforts at regulating and taxing online betting have run into political roadblocks, with lawmakers split, in part, over whether there is something pernicious about the online gambling economy that justifies leaving it in the informal economy, and if so, why that is.
Midnight deadline looms over Congress
The measure’s approval is time-sensitive: it must pass both the Chamber of Deputies and the Senate and be signed by the president by Wednesday at 11:59 PM.
Failure to do so would result in the MP’s automatic expiration, depriving the government of one of its primary revenue-raising and fiscal-balancing tools for next year.
If the measure fails, the Lula administration will confront an immediate shortfall in its fiscal plan for 2026, which could undermine investor confidence and complicate budget negotiations in the coming years.
“The plenary will vote,” Chamber President Hugo Motta (Republicanos-PB) announced late Tuesday, indicating that the proposal would be delivered to the floor before the midnight deadline.
With the clock ticking, the outcome will be a litmus test for the government’s ability to rally Congress around its economic program, as well as a gauge of how much political capital Lula is ready to invest to keep Brazil’s fiscal policy on track.
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