Introduction and regulatory framework

April 30, 2026 marks the formal start of the operational phase of the consumption tax reform in Brazil, with the publication of the Goods and Services Tax (IBS) and the Goods and Services Contribution (CBS) regulations.

Although they are legally distinct taxes, the IBS of shared competence between states, the Federal District and municipalities, and the CBS of federal competence, have been designed as “mirror taxes”, sharing a common conceptual and regulatory framework to guarantee neutrality and simplify the system.

Brazil had five main excise taxes, PIS, COFINS, ICMS, ISS and IPI, managed by three levels of tax administration: federal, state and municipal. Each commercial operation could cross different jurisdictions, rates and rules. The result was a system with high compliance costs, high litigation and frequent distortions in price formation.

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Scope of implementation

IBS and CBS work like a dual VAT: the supplier collects the tax from the customer, declares it and deducts the tax he himself paid on his purchases. The net result is that he is only taxed on the part of the value he has added. This eliminates the cascading effect, i.e. tax on tax that distorted prices.

• Generating event: the calculation basis is, as a general rule, the value of the transaction, excluding the amount of the IBS and the CBS itself to avoid “tax on tax”.
• Territoriality: the destination principle is adopted, whereby the tax belongs to the state and municipality where consumption occurs, not necessarily to the territory where the good or service is produced or invoiced.
• Passive subjection: both regular or professional suppliers and purchasers in imports are taxpayers. In addition, significant liability is attributed to digital platforms, which may act as responsible or substitute taxpayers in the transactions they intermediate.

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Pillars of reform

Full non-cumulativity

The new system allows companies to deduct the tax paid on their purchases from the tax due on their sales. In practice, this means that the tax is levied only on the value added at each stage of the chain, not on the total amount accumulated in previous operations. In order to be able to apply these credits, it will be necessary that the operation is correctly documented and that the corresponding tax has been effectively paid.

Split Payment

This is one of the most relevant operational changes of the reform. In certain transactions, when an invoice is paid, the amount corresponding to the tax may be automatically separated from the rest of the payment and sent directly to the tax administration. This system seeks to reduce the risk of non-payment or tax fraud and to link the generation of the tax credit to the effective payment of the tax.

Cashback (Customized Return)

The reform incorporates a partial refund mechanism of the IBS and CBS for low-income families registered in the Cadastro Único (CadÚnico). The objective is to offset part of the impact of consumption taxes on lower-income households and to make the system less regressive.

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Differences between the previous scenario and the new model

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Transition schedule

The reform is not implemented instantaneously, but through a process of gradual replacement.

• 2026: Trial period with reduced rates (0.1% IBS / 0.9% CBS). The amount paid in 2026 may be offset with PIS/COFINS or requested as a refund.
• 2027-2028: Termination of PIS/PASEP and COFINS. Implementation of CBS and IBS reference rates.
• 2029-2033: Gradual reduction of ICMS and ISS at the same time as the increase in IBS rates.
• 2033 onwards: Total extinction of ICMS and ISS. The system operates fully under IBS and CBS.