The Brazilian Tax Reform of 2024 promises to significantly transform the country’s tax system, aiming for simplification, fairness, and efficiency. Discover everything you need to know about the proposed changes and how they will impact businesses and consumers in this guide.

Main Proposed Changes of the Tax Reform

 

• Simplification of Taxes: Reduction of the complexity of the tax system by consolidating multiple taxes into a single consumption tax.
• Zero Rate for Basic Basket: Products in the national basic basket will have a zero rate, directly benefiting the population.
• Cashback for Low-Income Population: Introduction of a tax refund mechanism for those registered in the federal government’s Single Registry (CadÚnico).
• Selective Tax: Application of selective taxes on specific products, such as alcoholic beverages and cigarettes.
• End of Cumulativity: Taxes will no longer be cumulative, being charged only once along the production chain.

 

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How the Implementation of the Reform Will Work

The implementation of the reform will be gradual, starting in 2026, with all rules fully in force by 2033. The regulation will involve defining tax rates, exempt products, and tax collection mechanisms.

Critical Points of Regulation

• Definition of the Average IBS Rate: Estimated at 26.5%, which may vary according to political and economic agreements.
• Basic Basket Products: Listing and tax exemption for essential items.
• Cashback and Compensation Mechanisms: Implementation and operationalization for CadÚnico beneficiaries.

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Implementation Schedule

2026:

• Start of IBS collection at a rate of 0.1%.
• Start of CBS collection at a rate of 0.9%, offsetting this collection with contributions due to PIS and COFINS.

2027:

• IBS will be charged at a state rate of 0.05% and a municipal rate of 0.05%.
• Extinction of PIS/COFINS taxes, being completely replaced by the CBS, which will be charged at a rate to be defined by future Complementary Law with a reduction of 0.1%.
• Start of IS – Selective Tax collection (rates to be defined).
• Reduction of IPI rates to zero, except for products with incentivized industrialization in the Manaus Free Trade Zone, according to criteria established by complementary law.

2029:

• 10% reduction in ICMS and ISS rates defined according to each state and municipal legislation, adjusting the IBS rate to balance the revenue of States with ICMS and Municipalities with ISS.

2030:

• ICMS and ISS rates will undergo a further reduction of 10%, accumulating a total reduction of 20%. The IBS rate will be adjusted to prevent revenue loss for States and Municipalities.

2031:

• ICMS and ISS rates will undergo a further reduction of 10%, accumulating a total reduction of 30%. The IBS rate will be adjusted to prevent revenue loss for States and Municipalities.

2032:

• ICMS and ISS rates will undergo a further reduction of 10%, accumulating a total reduction of 40%. The IBS rate will be adjusted to prevent revenue loss for States and Municipalities.

2033:

• Extinction of ICMS and ISS. The IBS rate will be adjusted to prevent revenue loss for States and Municipalities.

Economic and Social Impacts

The reform aims to contribute to the Brazilian economy by increasing competitiveness, reducing operational costs, and providing greater legal security for taxpayers. It is also expected to improve fiscal transparency and generate employment and income.

Brazil Will Have the Second Highest VAT in the World at a Rate of 26.5%

Even with the approval of a cap for the maximum rate of the new Value Added Tax (VAT) – which will replace the five taxes charged on consumption in the country – establishing that the rate should not exceed 26.5%, Brazil’s VAT is expected to be the second highest out of a list of 38 countries. In addition to offering VAT exemptions for essential sectors as occurs abroad, the Brazilian proposal exempts or reduces the rate for sectors such as hospitality, sports activities developed by the Football Public Limited Company (SAF), and professionals such as lawyers, engineers, and accountants. The Brazilian version of the tax will be dual, divided into two parts: the text proposes replacing two federal taxes (PIS and Cofins) with a Contribution on Goods and Services (CBS), managed by the Union; and two other taxes (ICMS and ISS) with a Tax on Goods and Services (IBS), managed by states and municipalities. The IPI, which taxes manufactured products, will become a selective tax.

Conclusion

The 2024 Tax Reform represents an important milestone for Brazil, with the potential to positively transform the business environment and the lives of citizens. Prepare now for the changes, seeking specialized support from CLM Controller to successfully navigate this new tax landscape.