Brazil’s consumption tax reform: understanding the new selective tax

The approval of the Brazilian consumption tax reform in 2023, aside from revolutionising the country’s taxation by creating a VAT, introduced a selective tax (also known as the ‘sin tax’). This is designed to be an excise tax on goods and services deemed harmful to health or the environment.

Constitutional Amendment 132/2023 provided for the legal competence of the federal government to impose the selective tax, which is a single-phase tax. The goods or services to which it is to be applied will be defined by law. The tax will not be levied on exports, electricity, or telecommunications.

The selective tax is calculated on top of the net price and will not be included in its own taxable basis. The tax will be included in the taxable basis of the new VATs – goods and services tax (IBS) and contribution on goods and services (CBS) – and, during the transitional period, in the state VAT (ICMS) and municipal service tax (ISS) taxable basis.

In view of this legal competence, Supplementary Law 214/2025 was enacted on January 16 2025, creating the new VAT (CBS and IBS) and the selective tax. As determined by said constitutional amendment, this supplementary law provided that the selective tax will be levied on transactions involving certain:

• Vehicles, with some exceptions, such as trucks and vehicles with technical specificities for the army or public security bodies;

• Vessels and aircraft, with some exceptions, such as those with technical specificities for the army or public security bodies;

• Smoking products;

• Alcoholic beverages;

• Sugary drinks;

• Mineral goods; and

• Forecasting and fantasy sports competitions.

The selective tax will be levied once, upon:

• The first supply of the good under any title;

• Auction sale;

• Mineral extraction;

• Provision or payment for the service, whichever occurs first; and

• Imports.

The tax will also be levied in certain cases in which goods are not supplied, such as when consumed by the manufacturer or incorporated into its fixed assets.

The taxpayer is the manufacturer, importer, successful bidder at the auction, producer-extractivist that carries out the extraction, or the service provider, even if resident or domiciled abroad.

As a rule, the taxable base is the transaction value of the supply; nevertheless, on non-onerous transactions, mineral extraction, and transactions involving smoking products, the taxable base will be a reference value, the calculation methodology of which is yet to be defined.

Supplementary Law 214/2025 provides that the tax rate may be ad valorem and/or ad rem, differentiated by product/service, to be defined by another law (not yet enacted). The following aspects should be highlighted:

• The tax rates for vehicles will be graded in relation to each vehicle according to criteria related to power, energy efficiency, structural performance and driving assistive technologies, and carbon dioxide emission, among others.

• The tax rates for vessels and aircrafts may be graded according to environmental sustainability criteria, and even reduced to zero for vessels and aircraft with zero carbon dioxide emissions or with high energy-environmental efficiency.

• Cigars, cigarillos, and cigarettes, of tobacco or tobacco substitutes, as well as alcoholic beverages, will be simultaneously subject to ad valorem and ad rem tax rates. The rates concerning alcoholic beverages may vary in accordance with the alcohol proof and type of product.

• The rates established on transactions involving extracted mineral goods will respect the maximum percentage of 0.25%.

• Natural gas, when intended for use as an input in industrial processes or as a fuel for transportation purposes, will be subject to a zero rate.

Although further law must be enacted to provide for the relevant selective tax rates, deadlines for the monthly calculation, and tax maturity date, among other aspects, Supplementary Law 214/2025 has provided a broad regulation of this new tax, which will enter into force on January 1 2027.

Finally, as previously discussed, the Brazilian Congress presented Bill of Law 29/2024 on March 19 2024, aiming at regulating the general aspects of the selective tax, especially much-welcomed limitations on imposing the tax.

Nevertheless, the bill of law remains under analysis and, considering that Supplementary Law 214/2025 has already been enacted with the imposition of the selective tax, it is very unlikely that Bill of Law 29/2024 will be approved.

Although the selective tax will only enter into force in 2027, taxpayers whose operations involve the relevant products must begin preparations and keep a close eye on the enactment of the addition regulation, especially the tax rates.