What changes with the Brazilian consumption tax reform

Constitutional Amendment 132/2023 replaced the Brazilian model of consumption taxation with a dual value added tax, composed of the Tax on Goods and Services, shared by states and municipalities, and the Contribution on Goods and Services, at the federal level. Supplementary Law 214/2025 created both taxes and the Selective Tax, and Supplementary Law 227/2026 enacted the first adjustments to the new system.

The structure of the new model

The IBS and the CBS apply to onerous transactions with goods and services on a broad basis, under the destination principle and with full non cumulativity. Credits are financial, taken on virtually all acquisitions of the taxpayer, ending the restrictive logic of physical credits that marked the state VAT and the federal turnover contributions. Collection tends towards a single reference rate, with the burden disclosed on the invoice, and payment will rely on mechanisms of automatic segregation of the tax.

The statute preserves constitutionally defined differentiated regimes, including a sixty percent rate reduction for sectors such as health, education and public transportation, the reduction applicable to regulated professions, the zero rate for the national basic food basket and specific regimes for fuels, financial services and transactions with real property. The Selective Tax will fall on goods and services harmful to health or to the environment.

The transition timetable

In 2026 the system operates in a test phase, with a CBS of nine tenths of one percent and an IBS of one tenth of one percent, creditable against current taxes. In 2027 the CBS enters into full force, with the extinction of PIS and Cofins. Between 2029 and 2032 the rates of the state VAT and of the municipal services tax are gradually reduced in the same proportion in which the IBS is increased. In 2033 the new system applies in full.

Immediate legal measures

The period of coexistence between the two systems requires the review of long term contracts, with attention to price, adjustment and economic rebalancing clauses in view of the change in the tax burden, the reassessment of tax benefits and special regimes in force, and the mapping of accumulated credits of the extinguished taxes, whose use will follow specific rules. Companies with long contractual chains should anticipate renegotiation, as the allocation of the tax burden between the parties will cease to be implicit and become a necessary object of bargaining.

This article is for general information only and does not constitute legal advice. For guidance on specific situations, please contact our team at contato@gotlibrocha.com.br.