Brazil's Finance Minister Fernando Haddad attends a meeting of the Committee on Agriculture, Livestock, Supply and Rural Development of the Chamber of Deputies in Brasilia, Brazil September 24, 2025. REUTERS/Adriano Machado

By Marcela Ayres

BRASILIA (Reuters) -Brazil's government said it would start discussing on Wednesday measures to offset Congress' shelving of a proposal that would have overhauled taxation on investments while also raising taxes on betting and fintech companies to boost revenue.

The proposal was deemed crucial to help the government meet its fiscal goal of a zero primary deficit this year and a 2026 primary surplus of 0.25% of gross domestic product.

At the Senate's Economic Affairs Committee, Finance Minister Fernando Haddad said on Tuesday that lawmakers had expressed interest in finding ways to replace the dropped proposal, as the government seeks support for its budget.

He also signaled the government may push ahead with plans to raise taxes on online betting firms, saying they must help address the side effects of an entertainment that can lead to addiction.

Discussions on fiscal alternatives had been on hold pending President Luiz Inacio Lula da Silva's return from a trip to Italy on Tuesday.

Senator Humberto Costa, a member of Lula's Workers Party, said it was "extremely important" for the government to decide whether to send Congress a new proposal to tax betting firms.

"I think we can make it move forward. We shouldn't consider the issue of betting taxation as settled," he said.

The government had expected a fiscal gain of 14.8 billion reais ($2.69 billion) this year and 36.2 billion reais in 2026 from changes sent to Congress via an executive order that needed approval by last Wednesday to remain in force.

But the Lower House failed to vote on the proposal before the deadline, causing it to expire. Lawmakers said they would not support another tax hike by Lula's leftist government. The measure would still have required Senate approval.

Of the total fiscal impact, only 284.9 million reais this year and 1.7 billion reais next year would have come from raising the gross gaming revenue (GGR) tax on online betting companies to 18% from 12%, as originally proposed by the government.

Amid last week's negotiations, the government agreed to erase that provision, and the version that reached the Lower House no longer included the higher rate - a sign of the betting sector's lobbying power, despite broad public support for higher taxation on such firms.

Most of the expected fiscal gain from the shelved proposal would have come from tighter rules on companies' use of tax credits, projected to raise an additional 10 billion reais this year and the same in 2026.

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Haddad said further work is needed on income tax changes, after the Lower House passed a government bill that raises income tax exemptions for the middle class while introducing a minimum levy on the wealthy, which is still pending Senate approval.

According to the minister, the next steps would include changes to payroll taxation, followed by a reform targeting "pejotizacao," a common practice in Brazil of hiring workers as legal entities without formal employment ties, resulting in substantially lower taxation.

"If we send everything from the Finance Ministry's kitchen at once, it'll be chaos," he said, without specifying when the new proposals could be submitted.

($1 = 5.5014 reais)

(Reporting by Marcela AyresEditing by Frances Kerry and Richard Chang)