Consumption tax reform: a new scenario for Brazil
After intense debates and negotiations, Brazil finally implemented long-awaited tax reforms via Constitutional Amendment No. 132/2023 and Supplementary Law No. 214/2025. The main objective of the reforms was to make taxation more straightforward and transparent without reducing the overall tax base.
The new scenario has introduced various changes to consumption taxation in the country, including the creation of a Goods and Services Tax (IBS) to replace certain existing state-level taxes, a Goods and Services Contribution Tax (CBS) to replace the federal PIS/COFINS tax, and an Excise Tax (IS) on goods, services and related rights that are harmful to health and the environment. The reforms will also reduce a tax on manufactured goods (IPI) at the national level, maintaining the competitive advantage of producing goods in the Manaus Free Trade Zone in Brazil’s north.
The reforms also restrict the use of tax benefits to discourage tax imbalances among taxpayers, as well as among different states and municipalities as a result of so-called ‘fiscal wars’, aiming to make the tax burden more transparent for different economic sectors.
There will be no IBS and CBS-related tax benefits as a rule, except for those expressly provided for in Constitutional Amendment No. 132/2023.
The reformulation of consumption taxation has resulted in fundamental changes to how a wide array of transactions are currently impacted by taxation. The transition period for the reforms begins in 2026, with both tax regimes coexisting for a time until the old one is completely phased out in 2033.
The new consumption taxation rules directly affect the way companies are structured today. Given the scope for tax benefits will be more limited with the reforms, it is important to identify efficiencies and challenges arising from the new regime. According to partner Renata Cubas, this is particularly important for sectors traditionally subject to tax benefits, as special tax regimes have often provided companies with economic support to develop and prosper.
The transition period will temporarily increase the complexity of meeting tax obligations, considering that the two tax regimes will coexist during this time. This scenario will require greater investment in tax compliance and a higher level of system automation and parameterization. The IBS Steering Committee will play an important role in this transition, as beyond being responsible for managing IBS and several other responsibilities, it will function to ensure taxpayers' rights via reimbursements of ICMS credit balances that are not offset by 2032. For companies, it is essential to take strategic and preventative action – as an example, the current version of Supplementary Bill No. 108/2024 states that only taxpayers who previously applied for Brazil's states and the Federal District to approve these credits will be eligible for the aforementioned reimbursement
Marcel Alcades
Partner
With CBS and IBS being instituted with a broad base, they will be levied on transactions that were previously not subject to certain taxes – such as those involving operational leases – requiring more strategic analysis and potentially even business restructuring. In the same vein, with IBS and the CBS both being non-cumulative, there is potential for the costs of certain taxes to be reduced (as is currently the case with ISS taxation). Therefore, companies will also need to evaluate the practical effects of non-cumulative taxation on their transactions from this perspective
Renata Correia Cubas
Partner
The final text of Supplementary Bill No. 68/2024 provides for general rules for IBS, CBS, and IS taxes
