Understand how the IOF hike will affect your pocket – 09/20/2021 – Market

Consumers and businessmen already feel in their pockets from this Monday (20th) the high of the IOF (Tax on Financial Operations) until the end of the year, announced by the government of President Jair Bolsonaro (no party) last week.

On Thursday (16), the government issued a decree that determines the increase in the tax as an alternative to finance the new Bolsa Família, making credit more expensive. For individuals, the tax goes from 3% to 4.08% per year until December. For companies, the annual rate goes from 1.50% to 2.04%

Economists, however, fear that the measure will discourage consumption and hamper the country’s recovery, in a scenario in which forecasts for GDP (Gross Domestic Product) for next year are already starting to fall below 1%.

An example: the purchase of a refrigerator, in the amount of BRL 2,500, in 12-month installments and with an interest rate of 4.50% per month, is BRL 35.88 more expensive for the consumer, according to a simulation made by Anefac ​(National Association of Finance Executives).

Before, the IOF would be R$ 84.33 and now the IOF will increase to R$ 111.52 in this operation. In this way, he would previously pay 12 installments of R$ 283.41, totaling R$ 3,400.92, and now he will pay 12 installments of R$ 286.40, totaling R$ 3,436.80.

If it were just the IOF issue, the impact would not be so great, but in the current context — high household indebtedness, high unemployment, rising interest rates and inflation — this will affect economic growth, says Miguel Ribeiro de Oliveira, executive director of Anefac.

“In a context of repressed demand, people already tend to be more cautious, with the increase in the tax, this effect will be greater. In the case of companies, the increase in the cost of loans will be passed on to the consumer at some point and will have an impact in inflation.”

Currently, there are 62.2 million Brazilians in default, 14.4 million unemployed and inflation is more resistant than imagined at the beginning of the year.

In August, the IPCA (Broad Consumer Price Index) registered the biggest increase for the month in 21 years, of 0.87%, released last week. In 12 months, inflation is already in double digits.​

Another simulation, in this case of a personal loan in the amount of BRL 5,000, in 12 months and with an interest rate of 4.50% per month, points out that before the IOF would be BRL 168.65 and now it will change to BRL 223.04.

Thus, the purchase that previously would have been 12 monthly payments of R$566.83, totaling R$6,801.96, will now be made up of 12 monthly installments of R$572.79, or R$6,873.48 in total.

Anefac also simulated the impact of the tax increase on the use of overdrafts: for an amount of BRL 3,000, for 20 days and with an interest rate of 8% per month, the IOF that would be BRL 16.32 now goes move to R$ 18.11.

On the other hand, if the consumer uses the revolving credit card, in the amount of BRL 5,000, for 30 days at an interest rate of 12% per month, he would pay BRL 31.30 of IOF before and now he will pay BRL 35, 77.

Anyone who wants to finance a popular car will also feel the high IOF tax in their pocket, as shown by the example of buying a car worth R$ 50 thousand, in 12 months and with an interest rate of 1.50% per month.

Before, the IOF charged to the consumer would have been R$1,686.50; now, it goes to R$ 2,230.35. He would pay 12 installments of BRL 4,738.62, totaling BRL 56,863.44, and will now pay 12 installments of BRL 4,788.48 (total of BRL 57,461.76).

Planalto reported that the increase in the IOF rate will result in an estimated collection of R$ 2.14 billion.

In the view of economists, another point of concern, however, is that it is not guaranteed that the increase in the tax will be provisional, given that other increases in the past have already been announced as temporary and have become definitive.

“In addition, the IOF is a tax that serves to regulate when the economy is very heated and this can cause inflation. The tax is increased to make credit more expensive and reduce demand, but when it goes sideways, it is reduced to make it the cheapest financing”, adds Oliveira.

The most important thing, says the analyst, would be to reduce government spending and avoid measures that have consequences on economic activity and growth at this time. “The government did everything wrong: it will reduce demand at an already very negative moment.”

For companies, credit is also more expensive. Those who need credit for their company’s working capital, in the amount of R$100 thousand, in 12 months and with an interest rate of 1.30% per month, previously paid R$1,876.50 of IOF and now they will cost R$ 2,420.35.

Thus, if the company previously would pay monthly installments of R$9,224.07, totaling R$110,688.84, now it will be charged by 12 monthly installments of R$9,273.31, with a total of R$111,279.72.

Nicola Tingas, from Acrefi (National Association of Credit, Financing and Investment Institutions), reinforces that the transfer of higher credit costs to the consumer will generate an inflationary impact

“It is a time when additional taxation was not expected, with the economy slowing down for next year,” says the economist.

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