The Brazilian tax system is undergoing one of the greatest transformations in its history. The tax reform, awaited for decades, promises to simplify one of the most complex tax regimes in the world, reduce inequalities and boost economic development. In this article, we present a detailed analysis of the proposed changes, their objectives, expected impacts, and the challenges for their implementation.
Objectives of the Tax Reform
Simplification of the Tax System
Brazil has one of the most complex tax systems in the world. Brazilian companies spend, on average, 1,501 hours a year just to comply with tax obligations, according to World Bank data. The reform aims to drastically reduce this bureaucracy, unifying taxes and simplifying declaratory processes.
Reduction of Regional Inequalities
The current tax structure contributes to deepening inequalities between Brazilian regions. The reform mechanisms for the redistribution of resources, with the Creation of Regional Development Funds which can direct up to R$ 40 billion annually to less developed states.
Impact on Strategic Sectors
Sectors considered strategic, such as health, education, and agribusiness, will receive differentiated treatment in the new tax structure. The reform provides for reduced rates or exemptions for essential activities, stimulating their development and guaranteeing access to basic services.
Main Proposed Changes
Unification of Federal Taxes
One of the most significant changes is the creation of the Contribution on Goods and Services (CBS), which will replace federal taxes such as PIS, COFINS, and part of the IPI. CBS Will Operate as a Value Added Tax (VAT), a model adopted in more than 170 countries and considered more efficient and transparent.
Review of ICMS and ISS
The Tax on Circulation of Goods and Services (ICMS), under state jurisdiction, and the municipal Tax on Services (ISS), will be replaced by the Tax on Goods and Services (IBS). This change eliminates the so-called “fiscal war” between states and municipalities, which distorts investment decisions and impairs the country's balanced development.
Economic and Social Impacts
Effects on Companies
Studies by the Ministry of Economy indicate that tax simplification can reduce compliance costs for companies. Small businesses will especially benefit, with simplified regimes and less red tape. However, sectors that today enjoy specific tax benefits may face increased tax burdens in the short term.
Impact for Consumers
For the final consumer, the reform promises greater price transparency. The current system “hides” taxes along the production chain, making it difficult to perceive the real tax burden. With VAT, taxes will be clearly discriminated against, allowing for greater tax awareness and potentially reducing commodity prices.
Comparison with International Reforms
The Case of India
In India, with the GST instituted in 2017 (One Hundred and First Amendment), several state and federal taxes were unified, which generated increased collection in many states and allowed greater clarity and uniformity in indirect taxation. Although estimates vary, press reviews indicate that recent rate cuts and rationalizations had a positive impact on the tax base and consumption.
The German Experience
For decades, Germany has adopted a VAT system with different rates for essential products. The German model inspired aspects of the Brazilian reform, especially in the distribution of resources among federal entities and in the simplification of ancillary obligations for small businesses.
Political Challenges
Negotiations in Congress
The approval and regulation of the Tax Reform have advanced amid intense debates in the National Congress. The rapporteur, Senator Eduardo Braga, presented his Report to the Constitution and Justice Commission (CCJ) with several amendments, the result of an attempt to reconcile regional and sectoral interests. Issues such as the definition of the reference rate and differentiated regimes remain the main points of divergence, requiring continuous negotiations to ensure the formation of a qualified majority in decisive votes.
Pressure from Interest Groups
Throughout the discussions, various economic sectors have exerted strong pressure to maintain or achieve specific benefits. Specialists, such as the Secretary of Tax Reform, Bernard Appy, warn that each exception created reduces the simplicity of the system and may raise the average tax rate for other taxpayers. The great challenge is to find a balance between legitimate demands for special treatment and the need to keep the model efficient, transparent and neutral.
Future Perspectives
Implementation Deadlines
The tax reform provides for a gradual implementation, with a transition period between 2026 and 2033. This approach aims to minimize abrupt impacts and allow companies and governments to adapt. In 2026, the testing phase of the new system began, with a reduced tax rate. As of 2027, the effective replacement of current taxes with new ones begins.
Possible Adjustments
Experts point out that adjustments will be necessary during implementation. International experience shows that reforms of this magnitude often require calibrations after the start of their term. The IBS Steering Committee, made up of representatives from the three levels of government, will play a fundamental role in these adjustments.
Points of attention for the coming years:
- Definition of the definitive IBS and CBS rates
- Regulation of specific regimes for sensitive sectors
- Implementation of the technological verification and surveillance system
- Harmonization with international tax regimes
- Training of taxpayers and tax administrations
Count on TATICCA Allinial Global on the Tax Reform journey
A Global Allinial TACTICS You have a team of specialists ready to support your company at every stage of the transition. From the analysis of impacts to the review of processes and systems, we offer tailor-made solutions so that your organization is prepared for the challenges and opportunities that the Tax Reform will bring.
Contact us and discover how we can help your company adapt safely and efficiently.
