UPDATE 1-Brazil's finance minister links potential IOF tax tweak to financial tax overhaul

Brazil's Finance Minister Fernando Haddad said on Monday that any changes to a recent increase in the tax on financial transactions (IOF) would be tied to broader corrections of what he described as distortions in financial taxation.

The government last month hiked the IOF tax on some transactions to meet its fiscal targets, but the measure met with backlash and lawmakers signaled they could overturn it. Haddad suggested that discussion had opened the door to wider reforms. "If there's any adjustment, it will be part of a broader effort to correct existing imbalances in taxes related to finance," he said, without elaborating.

"Beyond addressing the 2025 issue, (the aim is) to carry out a structural reform for the coming years," the minister added. Haddad said a government decision, aligned with Congress, would be made by Tuesday, before President Luiz Inacio Lula da Silva departs for an overseas trip.

Lula's leftist administration tried last year to increase the social contribution tax on net corporate profits (CSLL) for financial institutions. However, the proposal was never voted on in Congress, and the government ultimately stopped counting on the nearly 15 billion reais ($2.63 billion) in extra revenue this year from the measure.

Asked whether the government would propose changes to that tax again, Haddad said only that the measure was not overturned - it simply was never voted on. He later noted that raising that tax would require a 90-day waiting period before taking effect, making it less suitable for this year, which is well under way. Haddad said the heads of both chambers of Congress were involved in discussions about how to better calibrate taxation.

"I believe we can provide a much more sustainable outlook, without resorting to stopgap measures that we know are not structural," he said. ($1 = 5.7061 reais)

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