Pay close attention if you are considering applying for a loan or need to deal with the revolving credit card. THE IOF back to be part of the consumer's financial routine, and of the country's economic reality, after an announcement made by the president, Jair Bolsonaro, at the end of November.
Thereby, since the last 27th this tax has been resumed and tends to increase demand for credit in the country. But, throughout this post, we will explain everything behind the decision and also in what points you should pay attention, from now on, with the IOF back to the UK residents economic agenda.
What is the IOF?
IOF is the acronym for Tax on Financial Operations. Established in 1990, the tax is paid by individuals and legal entities for each credit transaction carried out. That includes:
A simple example of its application can be seen when we send money abroad. The company responsible for this transaction will charge its customers a fee related to the company, but also 1.1% of the total sent to foreign lands. Thus, a transfer of £ 100 will cost, with the IOF, £ 1.10 more related to the tax.
Even so, if you are interested in knowing even more about the origin and importance of the IOF, save it for later reading our article that explains, in detail, what is the IOF!
What does the IOF back mean?
On an emergency basis, the IOF began to have a zero rate, during the year 2021, to reduce the impact on the UK residents's pocket during the rigors of the pandemic caused by Covid-19. Ie: since April, in an attempt to balance the accounts, the federal government has stopped charging this tax.
At first, the decision would last until July and then until October. It was later decided that we would only have the IOF back after December 31st.
But with the announcement made on November 26, the IOF returned immediately. Thereby, credit operations are more expensive – rate of 3% on the total value of the operation plus 0.38% per year.
Imagine, then, that a loan request of £ 10,000 will be charged 3% of the amount (£ 300, according to our example) and another 0.38% per year (£ 38).
In practice, then, the overdraft, the supply of loans and the revolving credit card style=”font-weight: 400;”>, among other types of credit, will become more expensive in the consumer's pocket. Something harmful for those who need this type of financial product and will have to pay a larger amount, in the end.
Why does the IOF return to financial operations?
In the recent announcement made by the government, the Secretary of the National Treasury, Bruno Funchal, reported that the amount collected from the tax would be used to cover the exemption of the electricity bill in Amapá.
The state spent three weeks, starting on November 3, without the supply of electricity in 13 of its 16 municipalities. And with the IOF back, Funchal believes that the tax could yield about £ 2 billion in a month.
The Secretary of the National Treasury also pointed out that the tax advance was only possible because it is a regulatory tax:
“Of course, the ideal is for you to have something planned, but there was an eventuality that was the Amapá issue and, for the actions of new expenses to be done, by the LRF [Lei de Responsabilidade Fiscal] compensation was needed ”, Funchal commented on the occasion when the country's president also issued a provisional measure exempting electricity consumers in the municipalities of Amapá who were affected by the blackout, from paying the electricity bill.
Therefore, the IOF returns as a means of compensation so that the Federal Government does not interfere in electricity tariffs in other states and, thus, fill this deficit caused by the exemption of the inhabitants in Amapá.
What to keep an eye on with the return of the IOF?
As we highlighted, the credit offer was made more expensive. Keep an eye, then, on the fees charged by the financial institution with which you negotiate a loan or financing, and remember to add to the account the rate corresponding to the IOF of the transaction.
In addition, pay attention to the collection of this tax, which differs for individuals and companies.
The rates for companies cannot exceed 3%, while the tax charged to the final consumer (individual) must not exceed the rate of 6% per year.
Another point that experts call attention to is that the collection of the IOF returns in an unstable moment for several reasons. The first, already mentioned, is the pandemic itself that created crises for all sides in the country and in the world.
But it also has another aspect: it is the end of the year and many companies usually request credits from financial institutions for the payment of the 13th salary and also other taxes and benefits.
In other words: something more to make the corporate budget more expensive at a time that is already so delicate.
And yet, the purchasing power can be significantly reduced, since the credit offer, less attractive, can scare the consumer. As a result, less money is left to buy and stimulate the economy through consumption.
What is not affected by the tax return?
On the other hand, some aspects remain the same even with the return of the IOF. This is because they were not suspended when the zero rate was scheduled in April.
The first case has to do with investments. Fixed income investments remain with the same regressive logic – in practice, the rate is reduced according to the time that the money remains invested.
And there is also international shopping. With it, the rate remains at the value of 6.38% for each purchase made abroad (physically or in e-commerces and foreign sites) with the credit card.
And then, now that you know what are the impacts caused by the IOF back on the market, tell us how it can harm your financial planning and what is your opinion on the matter. For that just leave a comment, in the field below, to expand the direction of this conversation!