Brazilian Congress Scrutinizes 17.5% Flat Crypto Tax, Repeal Deadline October 8

The Brazilian Congress is set to scrutinize the legality of a cryptocurrency taxation measure introduced by President Luiz Inácio Lula da Silva, which imposes a 17.5% flat tax on all crypto trading activities and removes prior exemptions for small transactions [1]. The Provisional Measure, enacted in June, targets decentralized finance (DeFi) operations and self-custodied assets, marking a significant shift from the previous system, which only taxed trades exceeding 35,000 reais ($6,320) [1]. Lawmakers now face a critical deadline: the measure must be approved or repealed by October 8 to remain valid, with a congressional hearing scheduled for August 6 [1].

The tax framework has sparked intense debate, with critics arguing it could stifle innovation in Brazil’s growing crypto sector and burden small investors. Deputies have introduced proposals to challenge the measure’s legality, citing concerns over its broad scope and lack of regulatory clarity [1]. Conversely, supporters frame the policy as a necessary step to integrate digital assets into Brazil’s formal financial system, generate revenue for public infrastructure, and align with international tax standards [1]. The government has emphasized the need to offset proposed hikes in financial transaction taxes by expanding crypto-related revenue streams [1].

Industry stakeholders remain divided. While some exchange platforms warn of compliance costs and operational challenges, others view the tax as a potential legitimizing force for crypto as an investment asset [1]. A key challenge lies in defining taxable activities, including airdrops, staking rewards, and non-fungible token (NFT) transactions. The government has yet to clarify how the tax interacts with existing capital gains rules, raising questions about administrative complexity [1].

The debate unfolds amid Brazil’s broader push to modernize its financial infrastructure, including plans for a central bank digital currency (CBDC) by 2026. However, the crypto tax scheme could face external pressures as the U.S. intensifies scrutiny of foreign digital asset policies under the Trump administration [1]. Meanwhile, Brazil’s efforts to strengthen ties with BRICS nations, such as through a proposed subsea cable project, highlight its ambitions in fintech innovation, though the tax’s reception remains uncertain [1].

Congressional discussions are expected to continue through the end of October, with no clear consensus emerging so far. The outcome will hinge on negotiations between government agencies and industry representatives, underscoring the complex balance between regulatory oversight and technological progress [1].

Source: [1] [Brazilian Congress to Debate Lula-Imposed Crypto Tax Scheme] [https://news.bitcoin.com/brazilian-congress-to-debate-lula-imposed-crypto-tax-scheme/]