BRASILIA (Reuters) -Brazil's government is expected to back a bill proposing a 10% cut to federal tax breaks as the main alternative to a controversial increase in the tax on financial transactions (IOF) proposed last month, two sources told Reuters on Thursday.

The bill, which was proposed by lower house lawmaker Mauro Benevides, sets a 5% reduction in the value of tax benefits in 2025 and a further 5% cut in 2026, the proposal showed. The legislation also applies to fiscal and credit benefits.

The tax cut breaks, however, will not include the Manaus free trade zone and non-profit entities, the proposal showed.

Brazilian Finance Minister Fernando Haddad said earlier this week that the government would unveil a new set of fiscal measures next week aimed at balancing public accounts, with their approval seen as crucial to revisiting a controversial IOF tax hike.

The bill that government is expect to support also blocks the concessions or the renewing of tax, credit and fiscal federal benefits.