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Brazil's Fiscal Reform: understanding recent events

On December 15, 2023, Constitutional Amendment Proposal No. 45/19 - Lei de reforma para tributação indireta (the Indirect Taxation Reform Law) - was approved by the Chamber of Deputies. With this approval, the text advances to the last stage before coming into effect - promulgation.

As we have mentioned on other occasions, the tax reform envisages the replacement of five taxes (PIS, Cofins, and IPI, under federal jurisdiction; and ICMS and ISS, under state and municipal jurisdictions, respectively) with a Value Added Tax (VAT), which will be divided into two parts:

  1. Contribution on Goods and Services (CBS), under federal jurisdiction; and,

  2. Tax on Goods and Services (IBS), under the jurisdictions of states and municipalities.

The following are the most relevant changes compared to the current system:

  • Adoption of the Value Added Tax (VAT) model - Union (CBS and IBS) and states (a single IBS covering more than 5000 municipalities).

  • CBS and IBS will have the same triggering events and calculation bases, using the "inclusive" calculation methodology.

  • Refund of accumulated CBS and IBS credits, which will be regulated by a complementary law.

  • Differentiated rates for IBS and CBS, with provisions for adjustments to avoid an increase in the tax burden.

  • CBS – a single rate.

  • IBS – a standardized rate by federal entities for all products, services, and rights, with exceptions.

  • Incentives will be limited to specific cases, with reference rates expressly provided.

  • Authorization for specific tax regimes, applicable only to specific sectors.

  • Introduction of a selective tax (Imposto Seletivo - IS) for goods harmful to health or the environment.

  • The Simples Nacional regime will be maintained, with the optional inclusion of IBS and CBS.

Another relevant change is that the complementary law will have the power to define the taxation of digital platforms.

Additionally, the implementation schedule is as follows:

  • 2026: Creation of CBS and IBS.

  • 2027: Start of the Selective Tax (IS) and end of PIS/COFINS. Reduction to zero of IPI on products without incentivized industrialization in the ZFM.

  • 2033: End of ICMS and ISS.

On the Brinta blog, we will continue to bring updates on regulatory changes in Brazil and Latin America. Using our platform, you will have greater ease in navigating these updates.


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