As discussed in a previous article in ITR, the Brazilian National Congress has approved a proposal for amendment of the Brazilian Federal Constitution that resulted in Constitutional Amendment 132/2023, which implements a broad consumption tax reform in Brazil.
The main changes provided for by the consumption tax reform are:
Unification of the state and municipal taxes of goods and services, substituting the state VAT (ICMS) and municipal service tax (ISS) for a goods and services tax (IBS) shared between states and municipalities;
Substitution of the social contributions on revenues (PIS and COFINS) and social contributions on the importation of goods and services (PIS-Import and COFINS-Import) for a contribution on goods and services (CBS), taxed by the federal government; and
Substitution of the federal excise tax for a ‘sin tax’ on goods and services (the selective tax) considered harmful to health and the environment, to be taxed by the federal government.
Heated debates around the consumption tax reform regulation took place in 2024, as the legislative branch had the burdensome task of implementing a groundbreaking regulation, while ensuring that the principles of simplicity and transparency be duly observed. Thus, after a long year of discussions involving the legislative branch, the government and its tax authorities, and civil society, on December 17 2024 the National Congress approved the first regulation of the consumption tax reform – legally imposing the IBS, CBS, and selective tax – which was enacted on January 16 2025 as Supplementary Law 214/2025.
Key points of the regulation
Aside from the legal creation of IBS and CBS, and comprehensive regulation of its levy (concerning, for example, taxable events, the taxable base, taxpayers and liable parties, and tax credits), the following aspects of Supplementary Law 214/2025 should be highlighted:
It determines that the IBS Management Committee, which will be the national tax authority agency regarding IBS, must be created by December 31 2025.
It provides for an exemption from paying the IBS and CBS test rate in 2026 for taxpayers that comply with their relevant ancillary tax obligations.
It removes the possibility of establishing a tax substitution liability regime for IBS and CBS, as provided for in the Federal Senate wording of the bill of law, for alcoholic beverages, mineral water, soft drinks, cigarettes, and other tobacco derivatives. This was a very welcome measure, as the tax substitution liability regime of the ICMS is one of the major sources of controversies, complications, and costs for businesses.
It provides details on the tax liability of digital platforms in relation to transactions carried out through them.
It regulates use of the ‘split payment’ tax collection method, enabling the payment of IBS and CBS simultaneously with the financial settlement of the taxed transaction.
It provides for a general 20% IBS and CBS cashback for individuals from low-income families with regard to their purchases, and 100% cashback on the acquisition of kitchen gas canisters weighing up to 13 kg, piped gas supplies, and domestic electricity, telecommunications, water, and sewage bills.
It establishes the criteria by which an individual will be classified as a taxpayer of IBS and CBS in real estate transactions, such as alienation, onerous transfer, and leasing.
The selective tax will be a one-time levy on the production, extraction, commercialisation, or importation of certain vehicles, vessels and aircraft, smoking products, alcoholic beverages, sugary drinks, mineral assets, and prediction and fantasy sports contests.
Although there have been broad debates on the matter, weapons and ammunition were kept outside the scope of the selective tax.
Presidential vetoes
Several provisions of Supplementary Law 214/2025 have been vetoed by the president of Brazil, such as those related to:
The authorisation for real estate investment funds, investment funds in agribusiness production chains, and equity funds to not be subject to IBS and CBS;
A zero rate for IBS and CBS on the importation of financial services, with the right to deduct the relevant expense for the IBS and CBS taxable base when the importer provides certain financial services;
Joint liability of the acquirer regarding IBS and CBS when the payment means used in the transaction does not allow for the use of the split payment method; and
The non-levy of the selective tax on exports of goods and services.
The vetoes will be analysed by the National Congress, to determine if they will be upheld or denied.
The Brazilian tax reform: looking ahead
Supplementary Bill of Law 108/2024 is under discussion, which aims to implement the IBS Management Committee and provide for IBS administrative litigation proceedings, tax penalties, and rules related to the distribution to the federal entities of the proceeds from the IBS collection, among other related matters. This bill of law has been approved by the House of Deputies and shall be analysed by the Federal Senate.
The new tax system will be implemented gradually between 2025 and 2032. Accordingly, companies should take a deep look into the new regulations, closely follow the enactment of additional regulations, evaluate the impacts, and implement necessary adaptations to their businesses.
