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

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

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

DLA Piper’s co-head of tax for the US and Latin America tells ITR about her fervent belief in equal access to the law, loving yoga, and paternal inspirations
Tax expert Craig Hillier agrees with the comparison of pillar two to using a sledgehammer to crack a nut
The amount is reported to be up 57% from the £5.6bn that the UK tax agency believes was underpaid in the previous year
The US president also unveiled a new 50% levy on copper imports; in other news, a UK wealth tax proposal has been criticised by the Institute for Fiscal Studies
Wim Wuyts, who had been head of the specialist tax network since 2017, is moving on to a new role with WTS’s Belgian member firm
MNEs are increasingly using algorithmic tools in TP. Sahasranshu Dash argues that data ethics should therefore plug directly into the TP design process
The Institute of Chartered Accountants in England and Wales also queried whether HMRC resources could be better spent scrutinising larger entities
Grant Thornton’s Austria tax head likens his practice to an escape room, shares his football coaching ambitions, and explains why tax is cool
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 EMEA Tax Awards
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 Asia-Pacific Tax Awards
Gift this article