On December 17, 2013, Brazil's Ministry of Finance raised the IOF tax rate on financial transactions made by Brazilians abroad from 0.38% to 6.38%. The tax applies to traveller checks, cash withdrawal and (pre-paid) debit card transactions.

The Ministry of Finance argued that Brazilians were avoiding the use of credit cards due to the lower taxation of debit cards and traveller checks. Thus, the goal of the measure is to avoid tax benefits by opting-out. However, the measure is also going to spur domestic consumption and to reduce domestic debt. The estimated tax revenue amounts to BRL 552 million (USD 234.65 million) per year.

The tax measure, Decreto no. 8.175/2013, entered into force on 27 December 2013.

IOF TAX
The IOF is a tax levied on any lending/borrowing transaction; or any conversion of foreign currency into Brazilian Reais (BRL), or vice-versa; and on any issuance, purchase, sale, redemption or liquidation of securities, including quotas of funds or bonds.
In the cases of loans, even though the borrower is the taxpayer, the creditor is responsible for calculating, withholding and collecting this tax.

As to foreign currency conversions, and more specifically in the case of a borrowing/lending transactions, the IOF is levied on inflows and outflows of funds corresponding to loans obtained from, or granted to, foreign entities or persons.

This tax emerged to control foreign capital inflows/outflows since the appreciation of the Brazilian real was hurting the manufacturing sector in the country.

For more information on the evolution of this tax, please see related state acts.