Brazilian Parliament is currently discussing interim measures that could potentially transform the domestic crypto tax, but it’s not necessarily better. If passed, the reform will impose a 17.5% tax on all cryptocurrency benefits.
According to Fabio Plein, regional director of the Americas at Coinbase, the proposed measures represent a critical set-off for retail and small investors. On the other hand, internet-friendly individuals can earn profits.
What is the provisional measurement value of 1303/25?
In June, Brazil’s federal government enacted a provisional measurement of 1303/25 to simplify the taxation system for a variety of financial products, including cryptocurrencies.
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This new interim measure will allow the Brazilian government to replace its current progressive crypto tax system with a flat rate of 17.5%. This change temporarily abolishes the previous hierarchy and taxes profits of 15% to 22.5%, depending on size.
Additionally, this measure erases existing exemptions for all crypto transactions that cost R$35,000, or less than about $6,500. It also standardizes the tax treatment of cryptocurrencies regardless of where they are kept. The flat rate applies equally to independent wallets and offshore accounts.
The government has enacted this measure to address a significant revenue shortage and help it meet its fiscal goals. The law directly addressed a previous political setback in which Parliament overturned the government’s attempts to increase the Financial Transactions Tax (IOF).
By introducing this new tax, Brazil aims to offset lost revenue in 2025 and achieve its zero deficit target. However, the future of this measure is not yet certain. Congress will soon vote on whether to make it permanent.
“There are at least 15 proposed amendments to cryptography aimed at correcting these distortions, and votes are expected between September and October. If the MP is not approved, it will not be converted to law and the proposed rules will not apply.
However, these changes in crypto taxes could potentially distract innovation from Brazil, the traditionally dominant country in the industry.
Crypto-Securities: Therapy Difference
The response to the Brazilian crypto community’s provisional measurement 1303/25 was primarily negative. According to Plein, the law lies on the false idea that codes are exempt from taxation in Brazil.
“The lasting but false narrative claims are that the code “does not pay taxes.”
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The measure seeks to unify taxation through a wide range of investment securities, but he added that crypto is at a disadvantage compared to securities.
“Compared to securities, the crypto is worsening. The securities enjoy a $60,000 quarterly exemption, and non-resident investors in the securities do not face withholding (WHT) income tax,” he explained.
In the meantime, flat rate taxes are combined with the elimination of the monthly minimum exemption, which has a major impact on small investors.
Who will benefit from tax changes?
Under interim measures, eliminating the R$35,000 monthly exemption for crypto transactions triggers calculations of capital for all purchases or sales. Plein compared the concept with Brazil’s current abolition tax, known as a tentative contribution to financial transactions (CPMF).
The CPMF, established in 1997, was a tax levied on almost all financial transactions, including withdrawals and transfers from bank accounts. The measure has been widely criticized for its cascade effect and impact on casual investors. Public dissatisfaction and political pressure led to the rule being expired in 2007.
“This remains the income tax on capital gains, but if you tax each small transaction regardless of your ability to pay, using Crypto to buy bread bread shouldn’t turn someone into a trader,” Plein says.
Plein argued that the new flat rate would violate the government’s claim that it would not raise taxes. Remove the monthly exemption and raise the floor tax from 15% to 17.5%.
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Paradoxically, this same tentative measure is more beneficial for wealthy individuals.
“It’s framed as targeting “super rich,” but flat 17.5% reduces the highest rate (previously up to 22.5%) and increases the effective burden on small investors. This is a confrontation with the expectations of fairness.”
The interim measure will introduce a new withholding income tax (WHT) to cryptocurrency activities, adding another layer of controversy.
Taxable yields and liquidity
WHT is a tax taken directly from a person’s income before receiving money. This new tax, which applies to Crypto, affects activities such as “defi-as-a-service” and “as-as-as-a-service” provided by the centralized platform.
Such taxes could become mandatory platforms for selling client crypto assets to pay tax bills. According to Plein, this approach is flawed because it combines the wealth tax principle with income tax.
The new tax has also expanded to non-resident investors and liquidity providers, a move that is considered a major competitive drawback. Traditional Brazilian securities are exempt from this tax for non-resident investors, which could lead to foreign capital flowing into crypto markets and other financial assets.
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Plein was worried that the move could push users up to unregulated platforms.
“The introduction of WHT is likely to drive users to decentralized solutions and independence. WHT, a non-resident investor, could reduce liquidity and create price distortions reminiscent of ‘Kimchi Premium’, similar to what happened in Korea,” he said.
Plein worries that making this scale permanent can prove catastrophic in a country where codes flourish.
Global leader at intersections
Brazil has one of the highest crypto adoption rates in the world. Many of its citizens use crypto not only as speculative investments, but also as a hedge against everyday trading and inflation.
“Brazilians (approximately 25 million Brazilians (about 16% of the population) are already participating and 70 million users are expected by 2026, making Brazil the seventh largest market in the world,” says Plein.
High levels of recruitment means that new tax measures could have a significant impact on the national economy. The current debate in Congress is not only about the tax laws, but also about the future of a rapidly growing industry that creates jobs and attracts investment.
“To get this right… is to promote innovation, investment and employment in Brazil rather than overseas,” Plein added.
Whether the measure will promote a more mature market or thwart future growth, the final decision of Parliament will have a lasting impact on Brazil’s position in the global crypto economy.
