Brazil’s 2026–2033 tax reform replaces five complex consumption taxes with a unified dual VAT system (CBS and IBS) and introduces a Selective Tax on harmful goods. The OECD praises it as a major modernisation. The reform adopts the destination principle, zero-rates exports, and harmonises rates nationally, with reduced rates for key sectors and zero-rating for essential foods. It creates a non-cumulative VAT, a central IBS committee for credit and revenue management, and a split-payment mechanism to strengthen compliance and enable real-time reporting. Equity measures include VAT cashback for low-income households and continued support for Simples Nacional. A six-year transition ensures revenue stability. Overall, the reform aims to sharply reduce compliance costs, improve neutrality, and modernise Brazil’s VAT system.
Brazil's Major Tax Modernization: Five Complex Taxes Replaced by Unified Dual VAT
Public
Brazil
Author: Ljubica Blagojević
Category:
General information
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2630
Content accuracy validation date:
01.12.2025
Content accuracy validation time:
08:40h
From five taxes to a unified dual VAT
The reform consolidates five overlapping taxes (IPI, PIS, COFINS, ICMS, ISS) into:
- CBS – federal VAT
- IBS – state/municipal VAT
Both follow a single legal framework for taxable events, exemptions and input credits. Only the IBS rate may vary, within federal limits. A new Selective Tax (IS) will apply to goods harmful to health or the environment.
Shift to the destination principle
Brazil moves from origin-based to destination-based taxation, ending inter-state “fiscal wars.” Exports become zero-rated, imports taxed like domestic supplies, aligning Brazil with OECD guidelines and models in Canada and India.
Rates and reductions
The Federal Senate will set reference rates to maintain national consistency. Reduced rates of 30%, 60% and 100% apply to priority sectors (healthcare, education, transport, agriculture, culture). Essential foods in the Cesta Básica Nacional are zero-rated. All reductions will be reviewed every five years.
Neutrality, digitalisation and split payments
The system becomes fully non-cumulative, eliminating cascading taxes with full input credit recovery. A central IBS Committee will manage credit offsets and revenue sharing. A split-payment mechanism will send VAT directly to authorities, reducing fraud and enabling real-time reporting and future pre-filled returns.
Equity and transition
A cashback scheme will refund VAT on essential utilities for low-income households. Simples Nacional remains, allowing buyers to claim input credits from Simples suppliers. The 2026–2033 transition includes temporary reference rates to preserve revenue neutrality.
A new global reference point
By simplifying taxes, adopting destination-based VAT, ensuring neutrality and integrating digital controls, Brazil’s reform is expected to cut compliance costs by over 60%, strengthen competitiveness and set a new benchmark for modern VAT design in large federal economies.
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