How Brazil’s consumption tax reform reshapes the agribusiness landscape

The approval of the Brazilian consumption tax reform in 2023 not only revolutionised the country’s taxation by creating a VAT system that will replace the current consumption taxes, but also simplified tax treatment. The regime brings national uniformity to tax rules and reduces, or eliminates, various differentiated regimes and benefits.

Several industries have built their business models and structures around the current consumption tax laws, and the changes implemented by the reform will significantly impact them, requiring a thorough reassessment of their operations. This is the case with agribusiness, one of Brazil’s most important economic sectors.

Currently, agribusiness is subject to several differentiated and beneficial tax treatments that result in a substantial tax burden reduction. For example:

• ICMS Agreement 100/1997 provides for a state VAT (ICMS) taxable base reduction on interstate transactions and an exemption on internal transactions with agricultural inputs;

• The social contributions on revenue (PIS and COFINS) are subject to a zero rate on transactions involving fertilisers, as well as a tax suspension on the supply of certain products to agro-industries, and deemed credits for the latter; and

• The federal excise tax is not levied, or levied at a zero rate, on fertilisers and natural products.

Considering that the consumption tax reform provided for by Constitutional Amendment 132/2023 determines that the new VATs (IBS and CBS) will be subject to a uniform tax treatment on all supplies of goods and services (with some exceptions), and that, as a rule, no tax benefit of differentiated treatment will be granted, the agribusiness sector became highly concerned with the possibility of a tax burden increase.

Due to the importance of agribusiness to the Brazilian economy, several concessions were made, and differentiated treatment was established for IBS and CBS. Regarding the tax rates:

• The supply, including imports, of agricultural, aquaculture, fishing, forestry, and plant extractive products in nature, as well as certain agricultural and aquaculture inputs, listed in Supplementary Law 214/2025, will be subject to a 60% reduction; and

• Vegetables, fruits, and eggs will be subject to a 100% reduction in rates, and basic food basket products (defined in the list that makes up the national basic food basket) – such as meat, flour, sugar, coffee, and oils – will be subject to a zero rate.

Also, aiming at simplifying the IBS and CBS tax compliance, Constitutional Amendment 132/2023 and Supplementary Law 214/2025 provided that a rural producer, whether an individual or a legal entity, that earns revenue of less than BRL3.6 million in the previous year is not considered an IBS and a CBS taxpayer, and the purchasers of their products will be granted deemed credit to eliminate any cumulative effect in the supply chain. In any case, these rural producers may choose to register as an IBS and a CBS taxpayer, which are subject to the regular tax treatment.

Furthermore, a zero rate has been granted on the supply, or imports, of tractors, machines, and agricultural implements, intended for non-IBS/CBS taxpayer rural producers.

Also, to boost rural producers’ cash flow, Supplementary Law 214/2025 provided for IBS and CBS payment postponement on the supply/import of agricultural and aquaculture inputs. To this effect, the producer will acquire these goods without the tax burden, which will be paid upon the sales of its production.

Aside from these tax treatments for agribusiness, the consumption tax reform also provides for several other very important changes and mechanisms, which will most certainly boost the tax cost reduction, such as the following:

• A full non-cumulative system; under which, virtually all taxed acquisitions will generate credits, making IBS and CBS truly neutral in the supply chain.

• A full reimbursement in cash of accumulated tax credits.

• A tax exemption on exports, which, allied with the full reimbursement in cash of accumulated tax credits, will reduce tax costs in comparison with the current tax system; under which, the recovery of tax credits on exports is bureaucratic, limited, and subject to several disputes.

• A full credit on acquisitions made as capital expenditure (CAPEX).

• The possibility of a tax suspension on acquisitions, both local and imports, of CAPEX. The suspension will be converted into a zero rate upon the incorporation of the goods into the fixed assets of the acquirer.

The consumption tax reform represents a revolution in Brazilian taxation, substantially changing the current paradigm and basis. Agribusiness must therefore pay attention to the new rules regarding its activities and adjust its strategies and operational procedures to maximise the benefits and mitigate possible negative effects. This is especially important because the transition from the current system to the new one will be gradual, with test rates beginning in 2026 and progressive reductions in current taxes.