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After 30 years of discussion, the National Congress has taken a historic step by approving the consumption tax reform on Wednesday, the 20th. Next year, lawmakers will review complementary bills to regulate various points of the constitutional amendment and begin the second stage of the reform, which will change income tax collection and payment.
The amendment will simplify and unify consumption taxes, but the changes will roll out gradually. New taxation on goods and services will begin in 2026 and conclude in 2033. The transition to taxing at the point of consumption will start in 2029, take 50 years, and only be fully implemented by 2078.
Key Changes: Creation and Extinction of Taxes
The reform introduces a dual Value-Added Tax (VAT) model:
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Contribution on Goods and Services (CBS): replaces PIS and Cofins, collected by the federal government.
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Goods and Services Tax (IBS): replaces ICMS and ISS, administered by states and municipalities.
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Excise Tax (IPI): was initially to be included in CBS but remains, applying only to products competing with those from the Manaus Free Trade Zone.
Under the dual model, the Union sets CBS rates, while states and municipalities agree on a single IBS rate, ending the fiscal “war” between regions. Both CBS and IBS are fully non-cumulative, eliminating cascading taxes along the production chain.
Taxes will eventually be collected at the point of consumption, not at the origin, and the reform also provides for export and investment exemptions.
Selective Tax
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Applies to products harmful to health or the environment.
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Rates set by law; 60% of revenue goes to states and municipalities.
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Annuality principle: collection starts the year after law is enacted.
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Targets: alcohol, tobacco, potentially fuels, pesticides, processed foods, and sugar-rich products.
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Exemptions: telecommunications, energy, Manaus Zone products, arms, and some agricultural inputs.
Transition Timeline
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2026: CBS and IBS pilot rates (0.9% and 0.1%).
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2027: PIS/Cofins eliminated; CBS raised to reference rate; IPI reduced to zero (except Manaus).
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2029–2032: Gradual ICMS and ISS phase-out (90% → 60%).
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2033: Full implementation of the new system.
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2029–2078: Gradual shift from origin-based to destination-based taxation.
Tax Rates and Exemptions
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Standard VAT rate: 27.5%, with reductions possible.
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Reduced rate (40% of standard) for: healthcare, education, accessibility products, some agricultural goods, arts, sports, and essential services.
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Zero rate: basic food basket, severe disease medications, higher education scholarships, small rural producers (up to R$2M annual revenue), non-profits, and public procurement under specific conditions.
Regional and Sectoral Incentives
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Amazon Free Trade Zone and Simples Nacional remain favored.
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Special regimes for fuels, financial services, insurance, real estate, healthcare plans, and entertainment.
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Extended incentives for vehicle manufacturers in the North, Northeast, and Center-West until 2032.
Social and Development Funds
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National Regional Development Fund (FDR): to reduce regional inequalities, gradually increasing contributions from R$8B in 2029 to R$60B in 2043.
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Amazon Sustainable Development Fund: targets Northern states with free-trade areas.
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Fiscal Benefits Compensation Fund: guarantees fiscal incentives until 2032.
Other Highlights
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Payroll tax relief may redirect additional revenue to reduce consumption taxes.
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IPVA extended to aircraft, boats, and watercraft, with progressive rates based on environmental impact.
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Inheritance and donation tax (ITCMD) becomes progressive and includes exemptions for socially relevant non-profits.
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Municipal taxes like IPTU and public lighting contributions updated to allow local flexibility.
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Second stage: income tax reform to be proposed within 180 days after the consumption reform.
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Source: TAX Prático
