Brazil’s consumption tax reform enters test phase

The Brazilian consumption tax reform was a very much needed measure to lead the country towards modern and rational taxation, by implementing a VAT approach with a contribution on goods and services (CBS) and a tax on goods and services (IBS).

Even though the eagerly anticipated implementation is set to begin in 2026, there are several crucial regulations to be enacted and many concerns on the horizon.

With its approval in December 2023, a rather short deadline for the implementation was set, determining that the test phase is to begin in January 2026. During this test phase, taxpayers are obliged to issue invoices stating CBS and IBS at a combined rate of 1% (0.9% for CBS and 0.1% for IBS). However, if the taxpayer complies with the ancillary tax obligations, the payment of the tax will be waived.

Considering this, there were several debates during 2024 on the enactment of the first regulation of the tax reform, Supplementary Law 214/2025. Essentially, this law creates CBS and IBS, as well as the new selective tax, providing for an extensive regulation on their levy.

Furthermore, many technical studies were carried out during 2024 and adjustments to tax documents were made to allow the reporting of the new taxes.

Despite the great efforts made in a very short time, several highly relevant regulations are still to be enacted and doubts clarified.

Parallel to Supplementary Law 214/2025, Supplementary Bill of Law 108/2024 is under discussion, aiming to implement the IBS Management Committee and provide for IBS administrative litigation proceedings, tax penalties, and rules related to the distribution of the IBS collection proceeds to the federal entities, among other related matters.

Supplementary Bill of Law 108/2024 has been approved by the House of Deputies and recently by the Senate, but with changes and improvements, which means it must be submitted for a revision by the House of Deputies. It is highly expected that the final approval by the House of Deputies and enactment of the supplementary law will occur by the end of 2025.

Also, additional CBS and IBS regulations must be enacted by the Federal Revenue Service and the IBS Management Committee. It is important to note that Supplementary Law 2014/2025 refers to “regulations” more than 100 times, and thus these regulations are crucial for further operationalisation of the new taxes.

Finally, many further adjustments to current tax documents and the implementation of new documents are awaited.

It is yet to be seen how the pending regulations will be addressed, especially considering that from 2027 the tax reform will enter the actual transition phase with the full levy of CBS, and thus businesses must have time to prepare.

Furthermore, under the current tax system, the operationalisation of several transactions – such as sales under consignment, toll manufacturing, and distribution of samples, including rules for invoicing and procedures for tax collection – is governed by ICMS and IPI regulations. To this effect, there are currently no rules for CBS and IBS, which results in uncertainties and concerns for taxpayers.

Adjustments to tax routines are not a simple matter, and any change and/or implementation requires IT adjustments in the current digital environment, which tend not to be simple. Thus, the lack of regulation and a prediction of when such will be enacted worries taxpayers as there might not be sufficient time to be compliant with the new rules.

Also, as previously discussed, there is an imminent risk that CBS and IBS could be controversially included in the taxable bases of current taxes in 2026, even though the new taxes will not actually be charged. While some states are positioning themselves against such inclusion – and even Pernambuco recently retracted from its previous statement – other states, as well as municipalities, are still silent, which adds to the uncertain scenario.

Nevertheless, the risks will be even greater from 2027, when the new taxes will be actually charged, as there is a consensus in the government that CBS and IBS must be included in the taxable bases of the old taxes, to avoid the loss of tax revenues. Bill of Law 16/2025 was presented to address this issue and determine non-inclusion; however, it is still pending analysis.

Although the consumption tax reform has been received favourably by the market, its implementation raises concerns and insecurities, especially regarding the timing for the absent regulations and their implementation by the government and taxpayers.

For now, taxpayers must prepare themselves as soon as possible for the existing rules, and hope for a swift legislative action by the beginning of 2026, with enough time for preparation and adjustments for 2027.