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

1. Updates in evidence

a) Initial considerations: Constitutional Amendment No. 132/2023 and its regulation;

b) Complementary Bill No. 68/2023 - General Aspects of CBS and IBS:

• The triggering event for CBS and IBS;
• Time of occurrence of the taxable event;
• Location of the transaction;
• Tax rates;
• Taxable person;
• Non-cumulativeness.

c) Transition to CBS and IBS; and

d) Excise Tax (IS).

2. Introduction

The Brazilian Tax Reform was enacted by Constitutional Amendment No. 132/2023, through which the main taxes on the consumption of goods and services were unified in the form of a Dual VAT, through the creation of a Goods and Services Tax (IBS) and a Goods and Services Contribution (CBS). In addition, this Constitutional Amendment provided for the possibility of creating an Excise Tax (IS), the aim of which is to tax the production, extraction, sale or import of goods and services considered harmful to health and the environment.

Given this context, on April 25, 2024, Complementary Bill 68/2024 was presented, which aims to regulate the Tax Reform.

The Bill provides for the general rules of the IBS and CBS, the transition period from the current model, the general rules of the IS, among other topics.

3. Tax landscape

The Brazilian Tax Reform has been  subject of debate for decades, especially given the complexity of the current tax system and, specifically with regard to taxation on consumption, its regressiveness, cumulative effect on the economic chain, among others.

Complementary Bill No. 68/2024 aims to regulate the Tax Reform approved through Constitutional Amendment No. 68/2024, establishing criteria for the new taxes instituted with tax neutrality and the simplification of the national tax system as a starting point.

In this context, the Bill establishes the 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 that provide, in summary, on the following topics: (i) general rules on IBS and CBS (Book I), (ii) general rules on IS (Book II), (iii) provisions on IPI compensation (Book III), (iv) five-year assessment of aspects of the project that do not correspond to general rules on the incidence of taxes (Book III), and (v) the Manaus Free Trade Zone and Free Trade Areas (Book III).

It is worth noting that, while the main characteristics of the IBS and CBS are their broad tax base, the crediting of taxes paid on purchases made in the middle of the chain and the limited number of reduced rates and differentiated regimes, the IS aims to discourage the consumption of goods and services that harm the environment and health, such as cigarettes, alcoholic beverages and soft drinks.

4. Repercussions and changes

The changes sought by Complementary Bill 68/2024 would have a direct impact on all sectors of the economy and would be challenging for Brazilian society, especially given the transition period of seven years for taxpayers and 50 years for the Tax Administration.

It should be noted, however, that many aspects of the Bill will still be discussed in the National Congress. As such, the general rules of the new taxes, the methodology and procedures for offsetting accumulated credits, the definition of differentiated tax regimes, the collection system and inspection may undergo significant changes.

5. What conclusions can we draw? 

Given all the above, there is a scenario of changes that will have a significant impact on the National Tax System, especially with regard to the transition period to the new model based on the dual value-added tax.

Considering that the IBS and CBS will start to be levied in 2026 and the IS 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 could have an impact on our clients' businesses.

Watch the class about the subject