Públicada em: Tuesday, July 25, 2023

On 7 July, 2023, the House of Representatives approved the consumption tax reform after two rounds of voting. Currently, Brazil employs five different taxes on consumption: the Imposto sobre Produtos Industrializados (Tax on Manufactured Products – “IPI”), Imposto sobre Circulação de Mercadorias e Serviços (Tax on Distribution of Goods and on Transport and Communication Services – “ICMS”), Imposto Sobre Serviços (Tax on Services – “ISS”), Programa de Integração Social (the Profit Participation Program Contribution – “PIS”), and Contribuição para Financiamento da Seguridade Social (Social Security Financing Contribution – “COFINS”).

The consumption tax reform proposes the replacement of IPI, PIS, COFINS, ICMS, and ISS with the new “Dual VAT” system. It will involve the creation of the Contribuição sobre Bens e Serviços (the “CBS”), under the jurisdiction of the Federal Government, and the Imposto sobre Bens e Serviços (the “IBS”), to be administered by the states and municipalities. Additionally, the reform introduces an Excise Tax (the “IS”) on the production, importation, or commercialization of goods and services that are harmful to health and the environment, falling under the jurisdiction of the Federal Government.

The key elements of the newly approved tax system, as passed by the House of Representatives, include the following:


Replace the ICMS, the ISS, the IPI, the PIS, and the COFINS with the new “Dual VAT” system, comprising:

• IBS (State and Municipalities)
• CBS (Federal Government)
• IS (Federal Government)

Broad-based tax on goods and services, excluding exports and investments

IBS and CBS: Applicable to imports, transactions involving cash value, as well as the supply of tangible and intangible goods, rights, and services, encompassing concessions, licensing of rights, and service provisions.

IS: Applicable to imports, production, and sales of goods with adverse effects on health and the environment, focusing on environmental impact and carbon emissions.

Tax Rates

Standard rate, with provisions for other rates applicable to specific goods and services, such as health, education, public transport, regional aviation, agricultural production, food for human consumption, personal hygiene products, and Brazilian cultural activities (with a 60% rate reduction).
Exemption from taxation for medicines, government purchases, public transportation services.

Products subject to zero tax rate of CBS and IBS: National Basic Consumer Products. A supplementary law shall define which “products intended for human consumption” will be part of the national basic food kit.

Key technical aspects

Fully non-cumulative, without being tied to payments made in previous stages, while enabling the taxpayer to claim credits for all expenses related to their business activities, irrespective of whether they are associated with administrative functions or the core operations of the company.

Principle of destination in interstate operations, where the tax is levied based on the destination of the goods or services.

Exclusion of tax cascading (not imposing tax on tax).

Tax regimes with special considerations

Maintenance of the Simplified Taxation System (“Simples Nacional”).

Continuation of the Manaus Free Trade Zone.

Maintenance of specific tax regimes should be ensured only for products and services that are challenging or infeasible to calculate through normal methods:

Gas & Oil will be subject to a monophasic regime with uniform tax rates, and taxpayers will have the possibility of receiving credits.

Financial services, real estate transactions, health assistance plans, and sports betting will experience changes in tax rates, credit rules, and calculation base. Additionally, these services will be taxed based on revenue.

Cooperatives will be exempt from CBS and IBS charges on operations conducted between the cooperatives and their members.

Hotel services, amusement and theme parks, restaurants, and regional aviation will be subject to differentiated tax rates and specific rules for tax credits.

Presumed Tax Credit for Recycling applies to waste and other materials intended for recycling or reutilization.

Confirmation through legislation that existing ICMS tax incentives will be upheld until 2032.

Establishment of a development fund by the Federal Government, aimed at reducing regional inequalities and stimulating the continuity of enterprises in less developed regions.

Phased implementation of the new TAX

The transition from the current tax system to the new tax system is expected to occur over an eight-year period, from 2026 to 2032. The transition process will involve a faster change for PIS and COFINS, while a gradual change will be implemented for ICMS and ISS.


Adoption of a cashback system for tax refunds for individuals.


    Brazilian House of Representatives passes Consumption Tax Reform | Martinelli Advogados

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