The federal government has enacted Supplementary Law 214/25, which regulates the tax reform focused on consumption taxation. Approved by the National Congress in December 2024, this new legislation aims to restructure Brazil’s tax system, a topic that has been under discussion for over three decades.
Structure of the New Tax Model
Supplementary Law 214 introduces the concept of a Dual VAT, replacing five existing taxes (PIS, Cofins, ICMS, ISS, and part of IPI) with two new taxes:
- Contribution on Goods and Services (CBS) – collected by the federal government.
- Tax on Goods and Services (IBS) – collected by states and municipalities.
Additionally, the Selective Tax (IS), also known as the “sin tax,” has been created. It will apply to products and services deemed harmful to health or the environment, such as alcoholic beverages and fossil fuels.
Key Changes and Benefits
The reform simplifies and enhances the efficiency of the tax system while providing significant social benefits, including:
- Exempt Basic Basket: Essential items like rice, beans, milk, meat, and infant formula will be tax-exempt.
- Cashback System: Partial tax refunds for low-income families registered in the Unified Registry (CadÚnico), covering items such as cooking gas and electricity.
- Differentiated Taxation: Reduced rates will apply to medications, personal hygiene products for vulnerable populations, education and healthcare services, artistic and cultural productions, and other sectors.
Economic Impacts
According to experts like Bernard Appy, the Extraordinary Secretary for Tax Reform, the unification of taxes:
- Simplifies the tax system.
- Stimulates economic growth.
- Encourages productive investments.
- Strengthens the competitiveness of domestic products.
Presidential Vetoes
President Luiz Inácio Lula da Silva vetoed sections of the law that proposed:
- Tax exemptions for investment and endowment funds.
- Exclusion of the IS for exports of goods harmful to health or the environment.
- Discounts on insurance for theft or robbery of devices.
Transition Timeline
The new tax model will be implemented gradually from 2027 to 2033. During this transition, the old and new systems will operate simultaneously, allowing taxpayers and tax administrations to adapt.