(Updates with details of the decree and context)
BRASILIA, May 22 (Reuters) - The Brazilian government on Friday announced a raise in income tax on banks to 20 percent from 15 percent, in an expected move to lift revenues to curb its swollen budget deficit and regain investor confidence.
In a decree published in the official gazette, President Dilma Rousseff hiked the so-called CSLL tax, a levy on the profits of companies used to contribute to the social security system.
The measure takes effect on the first day of the fourth month following the decree's publication.
Faced with dwindling revenues Rousseff is also considering other tax increases as she scrambles to meet an elusive fiscal goal this year and avoid losing Brazil's coveted investment-grade rating.
The government is expected to collect up to 4 billion reais ($1.31 billion) a year with the tax increase.
Later on Friday the government is expected to unveil a hefty freeze on some budgeted expenditures to show its commitment to fiscal austerity after years of lavish spending under Rousseff that eroded public accounts.
The tax hike is expected to add to current industry headwinds, ranging from a recession to fallout from a corruption scandal involving the largest state company and major engineering firms, analysts said.
The shares of Brazilian leading banks Itaú Unibanco Holding SA, Banco Bradesco SA and state-controlled Banco do Brasil SA fell in April on reports the government was planning to raise the CSLL levy.
The increase will also affect credit cooperatives, savings and loan associations and leasing companies, according to the gazette.
$1 = 3.0427 Brazilian reais Reporting by Alonso Soto; Editing by W Simon