I was surprised (and scared) by the news that the government increased the IOF for credit card purchases abroad. And for those who think the increase was small, it is better to hold on to the chair: it went from 2.38% to 6.38%.
To get an idea of the impact of this increase, if your card bill closed with the dollar at $ 1.70, after the IOF (Financial Transactions Tax) would be $ 1.81 .
The purpose of this article is to briefly explain what the IOF is, why the government has raised it to this level, and to discuss alternatives for making purchases abroad, taking into account the current situation.
What is IOF?
The IOF is the tax on financial transactions or, as described on the IRS website, is the Tax on Credit, Exchange and Insurance Transactions, or related to Securities.
In other words, when we use credit (either through credit card or financing), buy or sell foreign currency, or take out insurance (life, auto or health), we are paying IOF. However, it is important to note that, for each of these operations, the IOF rates are different.
Like the IPI (tax on manufactured goods), II (import tax and IE (export tax), the IOF is an extra-tax. This means that its main function is not tax collection but economic control). No wonder the government reduced the IPI after the 2008 crisis to encourage consumption and maintains the IE rate at 0% over several years.
Why did the government raise the IOF?
The main objective is to curb Brazilian consumption abroad. Last year alone, we left more than $ 16.4 billion out of the country. This is because the combination of cheap dollar income growth favors outbound travel and imported purchases over the internet.
The major concern is the deficit in the relationship between what Brazilians spend abroad and foreigners spend here, which has been growing year after year. Thus the national economy no longer receives good money and the government tries to contain this movement with this increase.
So how to shop overseas?
As the government raised the tax exclusively for purchases made with credit cards abroad, as can be seen in Decree 7,454 / 2011, we have some far more attractive alternatives: buying cash or using debit cards such as Visa TravelTree .
The great advantage is that this increase does not affect the purchase of foreign currency or debit card withdrawal operations, for example, which continue to suffer only 0.38% .
Last December I wrote the article “How to Buy Dollars for Travel,” where I pointed out the advantages and disadvantages of each alternative to buying dollars and already highlighted the higher IOF rate for credit card transactions. Now, with the tax rate at 6.38%, the disadvantages only increase.
What is the best way to buy dollars for travel?
I have already made my opinion clear in the article “How to buy dollars to travel” and, with this new increase, I still advise against using credit cards. But do you think so too? Leave a comment with your opinion!