The Provisional Measure issued by the Brazilian government to impose a flat fee on cryptocurrency income is being contested in Congress, as some believe it may exceed the executive’s jurisdiction on tax matters, thereby bypassing the institution’s mandate.
Flat Cryptocurrency Tax Decree Contested in Brazilian Congress
Cryptocurrency taxation is becoming a hot topic in Brazil, where it has become a central element in a legislative battle in Congress. Deputy Gustavo Gayer, from a party opposing Lula’s coalition, introduced a law project that would roll back the changes made by President Lula’s government on crypto taxation, under the premise of their alleged illegality.
The project, a Legislative Decree Project to Suspend Normative Acts of the Executive Branch, seeks to nullify the end of the tax exemption for small cryptocurrency holders enacted in Provisional Measure 1,303. The measure establishes a flat fee of 17.5% as income tax for all crypto holders without exception.
Gayer argues that the executive branch is overstepping its jurisdiction with this decree, as Congress would be the only organization capable of changing taxes.
The project assesses that the Brazilian constitution also limits the Executive’s power to issue Provisional Measures, restricting it to “situations of relevance and urgency, in addition to requiring that they do not involve the creation of taxes without due legislative authorization.”
Gayer also stresses that this new taxation scheme adds unnecessary clutter to a new industry that should be studied with nuance. “The regulation of an emerging market, such as digital currencies, requires a more in-depth analysis of the fiscal, economic, and social impacts, and approval through a regular legislative process, with the participation of interested parties, is essential to avoid possible distortions in the country’s fiscal policy,” he concluded.
The newly proposed tax regime has been criticized by some members of the Brazilian crypto industry, who believe it could disincentivize participation and push users to foreign and decentralized alternatives.
The Brazilian Congress must assess the validity of this measure and approve or reject its implementation in the next days.
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