Brazil establishes new tax treatment for chocolate, ice cream, tobacco and cigarettes

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Brazil establishes new tax treatment for chocolate, ice cream, tobacco and cigarettes

Since the beginning of 2016, the Brazilian Federal Government has rushed to raise its tax collection by increasing the excise tax (IPI) burden on chocolate, ice cream, tobacco and cigarettes.

The Brazilian Federal Government issued Decree 8656 on January 29 2016, altering the IPI treatment of transactions involving chocolate, ice cream or tobacco products. Manufacturers and commercial establishments carrying out such transactions now face an increased tax burden.

The IPI is a federal tax levied on (a) the manufacturing of products and (b) the import of manufactured products. This tax is payable on transactions carried out by manufacturing establishments or establishments held legally equivalent to them (such as importers), or on the customs clearance of manufactured products.

This tax is usually calculated by applying an ad valorem tax rate (from 0% to 300%, depending on the nature/type of goods) on: (a) the sales price of the product, in case of domestic transactions; or (b) customs value of the product plus, in case of imports, the import duty.

Nevertheless, for some products the IPI is calculated by an ad rem tax rate, usually a fixed amount in Brazilian reais (R$), to be paid according to the amount (in units or weight, for example) of product sold, regardless of their sales price. Until Decree 8656/06 was issued, this was the case with some chocolate (dark and white), some ice creams and chopped tobacco or powder not intended for pipes and smoke rope or rolling.

Before Decree 8656/06, such products were taxed by the IPI as follows:

  • Chocolate: R$0.09 (US$0.02) per kilogram of white chocolate and R$0.12 per kilogram of dark chocolate;

  • Ice creams: from R$0.05 per container under 1 litre to R$0.98 per container over 10 litres; and

  • Chopped tobacco or powder, not intended for pipes and smoke rope or rolling: R$0.50 per kilogram.

However, Decree 8656/06 sets forth that such products must be subject to the ad valorem calculation system of the IPI. Thus, chocolates and ice cream will be subject to a 5% rate and tobacco will be subject to a 30% rate.

This measure will significantly increase the IPI burden on the products mentioned, as well as their price because the ad rem calculation system generally results in a lower tax burden, as the IPI is calculated regardless of the actual sales price.

Furthermore, Decree 8656/06 has also established some changes in connection with the IPI on transactions with cigarettes.

Cigarettes are generally subject to the IPI ad valorem system, under a 300% rate applicable on the product’s retail price. However, cigarette manufacturers and importers may chose a special tax regime, under which the IPI is calculated by a 60% ad valorem rate applicable on the product’s retail price added with a R$1.30 per pack ad rem rate.

Decree 8656/06 has determined the increase of the ad valorem and ad rem rates of the special tax regime for cigarettes. Accordingly, such increase will be progressively carried out as follows:

  • From May 1 2016 to November 30 2016: 63.3% ad valorem and R$1.30 ad rem;

  • As of December 1 2016: 66.7% ad valorem and R$1.50 ad rem.

Finally, the legislation sets forth a minimum retail price for cigarettes of R$4.50, which will be increased to R$5.00 as of May 1 2016.

All changes brought by Decree 8656/06 will be in force as of May 1 2016.

Júlio M de Oliveira (joliveira@machadoassociados.com.br), and Gabriel Caldiron Rezende (grezende@machadoassociados.com.br) are members of Machado Associados’ indirect tax team.



more across site & shared bottom lb ros

More from across our site

The ruling underscores the need for companies to provide robust and defensible valuations of intangible assets, one partner tells ITR
Pillar two is certain to be a game-changer for tax advisers and their clients. Russell Gammon of Tax Systems outlines 10 reasons why
Despite a general decline in corporate tax rates around the world, jurisdictions are now more reliant on it than in 1990, a Tax Foundation economist found
Australian law firm Webb Henderson’s report said PwC had met 46 of 47 targets; in other news, the OECD has issued new transfer pricing country profiles
The arrival of a seven-strong team from Baker McKenzie will boost WTS Germany’s transfer pricing capabilities and help it become ‘a European champion’, the firm’s CEO said
Germany has forgotten to think about digital reporting requirements, a WTS partner claimed at ITR’s Indirect Tax Forum 2025
E-invoicing is currently characterised by dynamism, with fragmentation acting as a key catalyst for increasing interoperability, says Aida Cavalera of the International Observatory on eInvoicing
Pillar two and the US tax system ‘could work in harmony’, Scott Levine tells ITR in an exclusive interview to mark his arrival at Baker McKenzie
Peter White, who has a tax debt of A$2 million, has been banned for five years from seeking registration with Australia’s Tax Practitioners Board (TPB)
Wopke Hoekstra’s comments followed US measures aimed against ‘unfair foreign taxes’; in other news, Grant Thornton and Holland & Knight made key tax partner hires
Gift this article