Tax Law Highlights | Brazilian Tax Reform Regulation: General Law on IBS, CBS and Excise Duties

1. Evidence updates

a) Preliminary considerations: Amendment to the Constitution No. 132/2023 and its regulation;

b) Draft Supplementary Act No. 68/2023 – General aspects of CBS and IBS:

CBS and IBS trigger event;
The time when the taxable event occurs;
Place of transaction;
Tax rates;
Person liable to tax;
Non-cumulative.

c) Transition to CBS and IBS; and

d) Excise Duty (IS).

2. Introduction

The Brazilian tax reform was enacted through Constitutional Amendment No. 132/2023, through which the main taxes on the consumption of goods and services were unified in the form of a double VAT, by creating a tax on goods and services (IBS) and a contribution on goods and services (CBS). In addition, this constitutional amendment provided for the possibility of creating an excise tax (IS), the purpose of which is to tax the production, extraction, sale or import of goods and services considered harmful to health and the environment.

In this context, on 25 April 2024, the draft supplementary law 68/2024 was presented, the purpose of which is to regulate the tax reform.

The draft law regulates, among other things, the general principles of IBS and CBS, the transitional period from the current model, and the general principles of IS.

3. Tax landscape

Tax reform in Brazil has been the subject of debate for decades, especially given the complexity of the current tax system, especially the taxation of consumption, its regressivity and cumulative impact on the economic chain, and other issues.

The purpose of Supplementary Draft Law No. 68/2024 is to regulate the tax reform approved by Constitutional Amendment No. 68/2024, by establishing criteria for new taxes to be introduced with tax neutrality and simplification of the national tax system as a starting point.

In this context, the draft law establishes general rules for the IBS, CBS and IS, which will replace the PIS, Cofins, IOF-Insurance, IPI, ICMS and ISS, and is divided into three books which, in summary, cover the following topics: (i) general rules on the IBS and CBS (Book I), (ii) general rules on the IS (Book II), (iii) provisions on the IPI compensation (Book III), (iv) five-year evaluation of aspects of the project that do not correspond to the general rules on the tax burden (Book III) and (v) the Manaus Free Trade Zone and free trade areas (Book III).

It is worth noting that while the main features of the IBS and CBS systems are a broad tax base, the inclusion of taxes on purchases made in the middle of the chain and a limited number of reduced rates and differentiated regimes, the aim of the IS system is to discourage the consumption of goods and services that are harmful to the environment and health, such as cigarettes, alcoholic beverages and soft drinks.

4. Effects and changes

The changes envisaged in the draft of complementary law 68/2024 would have a direct impact on all sectors of the economy and would constitute a challenge for Brazilian society, especially considering the seven-year transition period for taxpayers and 50 years for the tax administration.

It should be noted, however, that many aspects of the bill will continue to be discussed in the National Congress. Therefore, the general principles of the new taxes, the methodology and procedures for offsetting accumulated credits, the definition of differentiated tax systems, the collection and control system may undergo significant changes.

5. What conclusions can we draw?

Taking the above into account, one can expect a scenario of changes that will have a significant impact on the National Tax System, especially in relation to the transition period to the new model based on double value added tax.

Given that the collection of the IBS and CBS taxes will begin in 2026 and the IS tax in 2027, the federal government plans to approve their regulation in 2024.

The Tax team is available to discuss the topic and the main aspects of the regulations that may impact our clients’ businesses.

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