Brazil banks say fintechs face higher effective tax rates due to profitability and leaner costs

By Brazil Stock Guide – Brazil’s banking federation is pushing back against claims that digital lenders face heavier tax burdens than traditional banks. A new study by the Federação Brasileira de Bancos (Febraban), disclosed by Broadcast, shows that the effective average income tax (IR) and social contribution tax (CSLL) rate of the country’s four largest banks was 22.8% in 2024, below the 26.5% paid by the top three fintechs.

Febraban argues the difference is explained by profitability rather than regulatory asymmetry. “Talking about effective rates without showing the tax paid is not addressing the debate,” the federation said. “Higher profitability naturally raises the effective tax rate, but this does not create additional taxes, nor higher ones.”

The issue gained momentum after Congress struck down Provisional Measure 1.303 earlier this month, which sought to lift CSLL for fintechs from 9% to as high as 20%, depending on size. Traditional banks already face a nominal 20% rate. “The MP 1.303 tried to correct the distortion but fell to half-price lobbying,” Febraban said. “Any tax advantage for either banks or fintechs is unacceptable when they perform the same activities, such as payments, personal credit, cards, and digital operations.”

The federation criticized the discrepancy in tax treatment: “The State must decide — will it tax the activity or the company’s label?”

Associations representing fintechs, such as Zetta — which includes Nubank (NYSE: NU), Mercado Pago (part of MercadoLibre, NASDAQ: MELI), and PicPay — argue that effective rates are even higher. According to their data, fintechs paid an average 29.7% in 2024, compared with just 12.2% for banks.

Finance Minister Fernando Haddad also expressed skepticism after the bill’s rejection, saying he “did not understand the idea that a fintech larger than a bank could pay less in taxes.”

Febraban highlighted that banks face higher funding costs, mandatory credit allocations, and broader operational expenses, which reduce taxable margins. From every 100 reais in revenue, only 7.60 reais remain taxable for the country’s top three private banks, compared with 16.60 reais at the top fintechs.

“The business model of fintechs focuses on low-cost products, lighter regulatory burdens, and significantly lower operating expenses, boosting margins and profitability,” Febraban said. “The proposal from banks is clear: same activity, same regulation, same taxation.”