Brazil Sets Selective Tax Rates for 2027 and Proposes IPI Extension

Brazil has published the first-year rates for its new Selective Tax, scheduled to apply from February 2, 2027. A separate constitutional amendment proposes extending the existing IPI tax during the transition. The measures affect product taxation, electronic fiscal documents and tax-system configuration.

Brazil has introduced two legislative measures to regulate the transition from the existing Tax on Industrialised Products (IPI) to the new Selective Tax, which targets goods and activities considered harmful to health or the environment.

On November 4, 2026, the government published Provisional Measure No. 1,399/2026, establishing Selective Tax rates and transitional rules for 2027. It also submitted Constitutional Amendment Proposal No. 22/2026 (PEC 22/2026), formally presented to the Chamber of Deputies on November 5, to maintain IPI taxation on affected products until the new tax takes effect.

The Selective Tax is scheduled to apply from February 2, 2027. The government intends to prevent a temporary interruption in taxation during January, when the existing IPI rates would otherwise be reduced to zero for affected goods.

The changes are particularly relevant to manufacturers, importers, automotive retailers, beverage distributors and retailers, as well as ERP, electronic invoicing and tax-compliance software providers.

The Selective Tax was established by Constitutional Amendment No. 132/2023 as part of Brazil's consumption tax reform. Its general framework was subsequently defined by Complementary Law No. 214/2025.

Unlike the broad-based Federal VAT (CBS) and State VAT (IBS), the Selective Tax applies to specific categories of products and activities.

These include vehicles, aircraft, recreational vessels, tobacco products, alcoholic beverages, sugar-sweetened beverages, certain mineral extraction activities and lottery operations.

The tax generally applies once within the production or import chain rather than at every subsequent retail sale. However, it can influence the price at which affected products reach retailers and final consumers.

For 2027, the government has introduced a temporary regime designed to preserve approximately the existing tax burden on affected goods instead of immediately introducing substantially higher taxation.

Provisional Measure 1,399/2026 establishes rates based on existing IPI classifications, adjusted through specific conversion factors.

Selected rates and treatments include:

These figures should not all be treated as final effective rates. For several products, the provisional measure requires additional conversion factors, and vehicle taxation also depends on technical and environmental characteristics.

Certain sustainable vehicles, qualifying vehicles purchased by people with disabilities or taxi drivers, and specified aircraft and vessels may receive zero-rate treatment. The measure also excludes qualifying trucks from the Selective Tax.

The central issue concerns the timing of Brazil's transition between the two taxes.

Under the constitutional reform, IPI rates on most affected products are scheduled to be reduced to zero from January 1, 2027. However, the new Selective Tax is scheduled to take effect only on February 2, 2027.

This creates a potential 32-day period, from January 1 through February 1, during which affected goods would not be subject to either tax.

To address this, the government submitted PEC 22/2026, proposing to maintain IPI taxation on products covered by the Selective Tax until the new tax begins applying.

The constitutional amendment still requires approval by both houses of Congress. It is therefore important to distinguish the already published provisional measure, which has force of law but requires congressional conversion, from the proposed constitutional amendment, which has not been adopted.

Impact on retailers, electronic fiscal documents and software providers

The most direct consequences concern businesses responsible for calculating and accounting for the Selective Tax, particularly manufacturers and importers.

Nevertheless, retailers may experience changes in supplier prices, product costs and the tax information contained in electronic fiscal documents.

For ERP and tax-calculation software providers, the transition requires particular attention to product classification, applicable rates, exemptions and the timing of the change from IPI to IS.

Brazil's electronic fiscal document systems, including e-Invoicing, will also be relevant for recording transactions subject to the new tax. Businesses must ensure that their invoicing solutions can accommodate the applicable tax information and supporting technical specifications.

The provisional measure does not establish a separate Selective Tax charge on every ordinary retail transaction.

However, Article 11 of MP 1,399/2026 specifically addresses the cancellation of electronic fiscal documents relating to transactions subject to IS. It provides for the deduction of the corresponding tax amount, with detailed procedures to be established through further regulation.

Article 12 also provides for assisted tax assessment based on electronic fiscal documents and other taxpayer information, reinforcing the importance of accurate transaction records.

What should businesses prepare?

Affected businesses should review their product classifications, evaluate the proposed 2027 tax burden and determine whether their ERP and invoicing systems can distinguish the current IPI regime from the new Selective Tax.

Software providers should prepare configurable tax rules rather than assume that the published percentages can be applied uniformly across product categories.

Manufacturers, importers and retailers should also monitor the progress of PEC 22/2026, since its approval will determine whether IPI continues applying to affected products during the January transition period.

The main consideration is accurate tax determination and its reflection in electronic fiscal documents. Businesses should also test corrections, cancellations and returns where these processes affect the underlying Selective Tax calculation.

The government must submit legislation establishing the rates applicable from 2028 by May 31, 2027. Consequently, the 2027 arrangements should be treated as a transitional regime rather than the final Selective Tax structure.

The principal legal source is the Provisional Measure No. 1,399/2026, from November 4, 2026 - Source

Ivana Picajkić Medior Legal Consultant Linkedin profile