Brazil’s Consumption Tax Reform: OECD Analysis and Key Impacts

The recent OECD report, “The Reform of Brazil’s Consumption Tax System”, confirms that Brazil’s tax reform addresses long-standing challenges within the country’s complex and fragmented consumption tax framework.

The shift toward a Dual VAT system represents a structural transformation that will directly affect how multinational companies operate in Brazil.

New Tax Structure: the Dual VAT Model

The reform introduces a Dual VAT system to replace the five main consumption taxes currently levied at federal, state, and municipal levels.

• Federal level (CBS): the new Contribution on Goods and Services (CBS) will replace IPI, PIS, and COFINS.

  
  

• Subnational level (IBS): the new Tax on Goods and Services (IBS) will replace the State ICMS and the Municipal ISS, combining both state and municipal components.

  
  

• Selective Tax (IS): a federal excise tax applied to goods and services considered harmful to health or the environment (such as production, extraction, or importation).

  
  

The Pillars of Brazil’s Consumption Tax Reform: Neutrality and Simplicity

The new system is designed according to international best practices — broad-based, neutral, and simplified.

• Full non-cumulative credit: businesses will have the full right to recover input taxes (for both CBS and IBS), ensuring that the tax burden does not rest on production.

  
  

• Destination-based taxation: both CBS and IBS will be levied at the place of consumption (destination), replacing origin-based rules that created economic distortions and “tax wars.”

  
  

• Uniform tax base: CBS and IBS will share a single, nationwide legal framework with a harmonized tax base — a major step toward simplifying the current fragmented model.

  
  

• IBS Steering Committee: an independent management body composed of state and municipal representatives, responsible for IBS collection, administration, and revenue distribution. It will serve as a single point of contact for businesses managing IBS compliance and input tax credits.

  
  

Implementation Timeline and Corporate Challenges

The implementation phase requires close attention from corporate tax and finance departments:

• Transition period (2026–2033): the new and old systems will coexist gradually until 2033.

  
  

• Timeline: CBS is expected to be fully implemented by 2027, and IBS by 2033.

  
  

• Testing phase rates: from 2026, reduced rates (CBS 0.9% and IBS 0.1%) will be applied to test operations.

  
  

• Reference rates: the Federal Senate will define revenue-neutral standard rates.

  
  

• Cashback mechanism: designed to refund part of the tax to low-income households.

  
  

• Split payment system: expected to be introduced through a Supplementary Law, allowing the purchaser to remit the tax directly to authorities, reducing the compliance gap and ensuring stronger credit control.

  
  

Strategic Implications for Multinational and Local Operations

Brazil’s Consumption Tax Reform marks a major modernization milestone, aligning the country’s framework with global VAT standards.

Multinational companies will need to reassess their operational models, supply chains, and ERP systems to comply with the new credit, reporting, and filing logic.

While the reform promises simplification, it will also demand strategic tax planning and process automation to mitigate the risk of discrepancies between federal and subnational systems.

Source: OECD

Brinta and the Transformation of Brazil’s Tax Landscape

Brinta supports companies seeking efficiency and compliance amid Brazil’s tax transformation.

Our platform centralizes data, automates calculations, and ensures accurate filing of obligations, with full coverage for Brazil and other Latin American jurisdictions.

 Talk to our team and prepare your operation for the new era of taxation in Brazil.