Brazil's first tax reform in over 30 years aims to simplify and modernize the tax system by unifying four taxes into a dual Value Added Tax (VAT) system and introducing a tax on harmful products. Despite short-term challenges, the reform promises a simpler, more predictable tax system.
Brazil’s Tax Reform: Simplifying the System
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Brazil
Author: Ema Stamenković
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Content accuracy validation date:
08.09.2025
Content accuracy validation time:
08:23h
Brazil’s first tax reform in over 30 years aims to simplify and modernize the tax system by unifying four taxes (PIS, COFINS, ICMS, ISS) into a dual Value Added Tax (VAT) system, CBS (federal) and IBS (state/municipal), and introducing a tax on products harmful to health or the environment. The reform seeks to reduce red tape, enhance compliance, and promote economic growth.
Short-Term Challenges
While long-term simplification is expected, the transition (2026–2032) involves:
- System Coexistence: Managing old and new tax systems simultaneously.
- Undefined Rates: IBS and CBS rates are yet to be set, creating uncertainty.
- Technological Adaptation: Updating accounting/tax systems will raise short-term compliance costs.
Current System Complexity
The existing system, with overlapping federal (PIS, COFINS, IPI), state (ICMS), and municipal (ISS) taxes, is highly complex due to varied rules, deadlines, and calculations. Jurisdictional differences cause tax conflicts, encourage evasion, and reduce competitiveness.
Dual VAT Unification
The reform consolidates taxes into:
- CBS: Replaces PIS and COFINS (federal).
- IBS: Replaces ICMS and ISS (state/municipal).
This reduces declarations, payments, and divergent interpretations by standardizing calculation bases and tax credit rules, minimizing conflicts.
Benefits
- Clearer Obligations: Standardized rules and centralized administration improve tax burden predictability.
- Fewer Conflicts: Simpler rules and uniform bases reduce tax litigation.
Implementation
Per CF/88 and LC 214/2025, the Steering Committee oversees inspection, collection, revenue distribution, unification of ancillary obligations, and Split Payment implementation.
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