From 1 April 2026, Brazilian states continue diverging ICMS reforms, with São Paulo abolishing ICMS tax substitution for perfumery, cosmetics, and personal hygiene products and shifting them to the normal VAT regime, while Alagoas raises its general ICMS rate from 19% to 20.5% and restructures tax benefits. These changes require businesses to update ERP and tax systems, manage inventory and credits, and reassess pricing and cash-flow impacts well ahead of the effective date.
Brazil: São Paulo and Alagoas announce major VAT changes effective April 2026
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Brazil
Author: Ivana Picajkić
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Content accuracy validation date:
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Brazilian states continue to adjust their VAT (ICMS) frameworks ahead of broader tax reform. In São Paulo and Alagoas, new measures were approved at the end of 2025, introducing significant changes to VAT (ICMS) taxation effective from April 1, 2026. While São Paulo is restructuring sectoral taxation by ending VAT tax substitution for specific products, Alagoas is increasing its general VAT rate and revising tax benefits.
Through Decree SRE No. 94/2025, São Paulo has decided to remove perfumery, cosmetics, and personal hygiene products from the VAT (ICMS) Tax Substitution (ICMS-ST) regime, effective 1 April 2026.
As a result:
- These products will no longer be subject to advance ICMS withholding,
- Transactions will fall under the normal ICMS regime, with tax due at each stage of sale,
- There will be no legal basis for applying ICMS-ST to these goods in São Paulo after this date.
To implement this change, the decree:
- Revokes Annex XI of Ordinance CAT No. 68/2019, which listed these products under ICMS-ST,
- Revokes SRE Ordinance No. 48/2025, eliminating VAT-ST margins, fixed indices, and adjusted calculation rules (including the 177.19% margin).
Taxpayers holding stock subject to ICMS-ST must perform a mandatory inventory as of March 31, 2026, in line with Ordinance CAT No. 28/2020, as amended.
Key obligations include:
- Preparing a digital inventory report per product, including NCM, CEST, quantities, ICMS-ST paid, and tax documents,
- Recording inventory in the Inventory Register Book,
- Correctly completing Block H of the EFD ICMS/IPI.
Taxpayers under the Periodic Assessment Regime (RPA) may recover previously paid ICMS-ST as a credit:
- Claimed in Block E of the EFD ICMS/IPI,
- Using adjustment code SP020750,
- In up to 12 monthly instalments, starting April 2026.
ERP and tax systems must also be updated to:
- Remove ICMS-ST CST/CSOSN codes (e.g. 60, 500),
- Apply standard ICMS CSTs,
- Review CFOP codes and ICMS calculation logic.
In parallel, Alagoas enacted amendments to State Law No. 5,900/1996, introducing structural changes to ICMS taxation, also effective April 1, 2026.
The general internal ICMS rate will increase:
- From 19% to 20.5%,
- Applicable to all transactions and services not covered by reduced rates, exemptions, or special regimes.
This change directly increases the tax burden on standard domestic operations in the state.
The law formally restructures Alagoas’ basic food basket, dividing products into:
- Fully ICMS-exempt items, and
- Items with a reduced tax base, resulting in an effective 7% ICMS rate.
Exempt products include fresh produce, dairy, meats, canned sardines, and selected locally produced goods. Products taxed at 7% include staple foods such as rice, beans, sugar, flour, pasta, coffee (excluding capsules and gourmet variants), milk, cooking oil, margarine, salt, and vinegar.
The Finance Department may further restrict these benefits to products primarily consumed by low-income households through regulation.
The new law also introduces:
- ICMS exemption on domestic sales of used vehicles, subject to conditions (vehicle age or mileage, regular issuance of tax documents),
- Authorization for up to 80% reduction of the ICMS tax base on intercity passenger transport, pending regulation,
- A reduced 12% ICMS rate for Compressed Natural Gas (CNG) in domestic transactions.
Although both states’ measures take effect on the same date, they pursue very different policy goals:
- São Paulo is simplifying sectoral taxation by eliminating ICMS-ST and shifting compliance to normal ICMS rules,
- Alagoas is increasing its general tax burden while preserving targeted social and sectoral tax benefits.
Companies operating in either state should:
- Review product classifications and tax treatments,
- Update ERP and fiscal systems,
- Assess inventory, cash flow, and pricing impacts,
- Begin operational and tax planning well ahead of April 2026.
These changes reinforce the need for state-level ICMS monitoring, as Brazil’s indirect tax landscape continues to evolve unevenly across jurisdictions.
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