The Tax Reform approved by Constitutional Amendment No. 132/2023 changed the way Brazil taxes consumption. Three new taxes were created in order to streamline the tax system: the CBS (federal), the IBS (state and municipal), and the Selective Tax (IS), also federal, which applies to products harmful to health and the environment.
Despite the proposed simplification, the combined use of these taxes raises concerns about potential overcharging and a lack of clarity in the rules. This article analyzes the main problems and solutions to ensure the new system functions fairly and efficiently.
The new National Tax System: an overview
The Tax Reform approved by Constitutional Amendment No. 132/2023 inaugurated a new National Tax System , based on the dual model of Value Added Tax (VAT) . The objective is to simplify taxation on consumption, replacing complex and cumulative taxes with two main taxes: the CBS and the IBS.
The Contribution on Goods and Services will unify the PIS, Cofins, and part of the IPI. The Tax on Goods and Services will replace the ICMS and ISS. Despite having different jurisdictions, both will follow common rules, bringing Brazil closer to simpler and more efficient international models.
This new system aims to reduce historical distortions, such as tax wars between states and the accumulation of taxes. The CBS will be managed by the Federal Government, while the IBS will be administered by a national Management Committee, with the participation of states and municipalities.
Another important element is the Selective Tax , created to act as a market regulation instrument. Extrafiscal in nature , it will apply to products and services that are harmful to health or the environment, such as cigarettes, alcoholic beverages, and fossil fuels.
Unlike the CBS and IBS, the IS does not aim to raise revenue broadly, but rather to discourage harmful behaviors. Its constitutional basis is found in Article 153, VIII, of the Constitution, and its function is similar to the logic of a "sin tax".
Even with the promise of simplification, the new model presents operational complexities . The transition will be lengthy, with overlapping phases between the current system and the new one. Furthermore, it will require investment in technology, training, and adaptation for companies and the tax administration.
That being said, the new National Tax System represents an important step towards modernizing taxation in Brazil. However, its effectiveness will depend on sub-constitutional regulations, cooperation between federative entities, and the ability to overcome historical challenges of fiscal bureaucracy.
Coexistence of taxes: overlap and risk of double taxation.
The coexistence of taxes in the new National Tax System has generated significant points of tension in practice, especially with regard to the overlapping of tax obligations and the risk of double taxation.
CBS and IBS on the same transaction
The dual VAT model establishes two taxes on consumption: the CBS (federal) and the IBS (state/municipal). In practice, both are levied on the value of the same consumption transaction, resulting in double taxation, although the structure seeks to avoid cascading taxation thanks to the non-cumulative regime.
Selective tax on CBS/IBS
The Selective Tax , an extra-fiscal tax on specific goods (such as tobacco, alcoholic beverages, and fuels), is now included in the calculation base of the CBS/IBS, fueling legal discussions about maintaining non-cumulativeness.
This means that, despite replacing the IPI (Tax on Industrialized Products) with a discouraging effect, the IS (Tax on Services) ends up being taxed by the IBS (Tax on Goods and Services) and the CBS (Contribution on Goods and Services) as well, contradicting the objective of tax neutrality and simplicity.
Questions about cumulativeness and neutrality
The dual VAT model aims for non-cumulativeness , meaning it only taxes the value added at each stage. However:
- The fact that the IBS and CBS do not integrate their own databases. This means that they are not subject to new internal taxes.
- The inclusion of IS (Stamp Duty) in the calculation basis of the new taxes This contradicts the model, as it implies tax collection on tax collection.
These inconsistencies undermine the promised neutrality and increase the potential for double taxation, affecting the regulatory coherence and operational functionality of the system.
The role of Article 156-A of the Constitution
Article 156-A, § 1, VIII, of the Federal Constitution establishes that the dual VAT will be non-cumulative , as complemented by LC 214/2025. However, this same provision:
- It prohibits the IBS/CBS from forming its own tax base or the tax base of other taxes such as ISS or ICMS.
- It expressly allows the inclusion of IS in the IBS/CBS database.
Although constitutionally valid, in practice this article 156-A reveals an operational limitation , since the inclusion of the IS (Stamp Duty) compromises the effectiveness of the VAT system and imposes implementation challenges.
Regulatory coherence and challenges
The absence of detailed complementary laws, such as PLP 68/2024 , creates a regulatory vacuum that compromises legal certainty. Although the bill addresses essential points of the IBS, CBS , and IS, many provisions still await regulation. This gap opens the door to differing interpretations and generates uncertainty for both taxpayers and federative entities.
The reform also established a division of responsibilities. The Union is responsible for formulating the general rules of the CBS and the Selective Tax . The IBS will be managed by the Steering Committee, composed of representatives from the states and municipalities.
This separation seeks to preserve the federal pact, but it can result in conflicts. Disagreements between the Committee and the Federal Revenue Service, for example, can occur in the definition of tax rates or in the treatment of credits.
To avoid insecurity and fragmentation, the Steering Committee needs to act in a coordinated manner, with clear and predictable decisions. Otherwise, there is a risk that each entity will adopt its own rules, compromising the proposed simplification of the new system. The delay in regulation and the effective structuring of the Committee only reinforces this challenge.
Tax justice and its impacts on taxpayers.
The IS (Stamp Duty) was conceived as an extra-fiscal tax, aimed at discouraging the consumption of products harmful to health or the environment. Among the sectors most targeted are alcoholic beverages, cigarettes, electricity, and vehicles. However, the way this tax will be implemented raises concerns about its regressivity.
This is because products such as energy and fuels are part of the basic consumption of the population, including the poorest segments. When the IS (tax) is levied on these goods, it ends up proportionally penalizing those with lower incomes more. The risk, therefore, is that this tax will end up widening social inequalities instead of correcting them.
Another point of attention is the promise of tax relief for the production chain , made as one of the main justifications for the reform. The idea is that, with the replacement of current taxes by a dual VAT system (CBS and IBS), companies will be able to take advantage of credits throughout the chain, eliminating cumulativeness.
In practice, however, there are still doubts about how the IS (Stamp Duty) will be treated within this system. If it does not generate credits or is included in the calculation base of other taxes, it could cause cascading effects —compromising fiscal neutrality and increasing the final cost for the consumer.
Furthermore, the simultaneous coexistence of three consumption taxes (CBS, IBS, and IS) jeopardizes the principle of tax equality . Depending on how it is regulated, the model could favor specific sectors at the expense of others, or more severely impact certain consumer groups.
Finally, the challenge of respecting citizens' ability to pay remains open. Although Article 156-A of the Constitution allows for the coexistence of taxes, it is essential that their application be coordinated in a fair and proportional manner, ensuring that each taxpayer pays according to their actual economic situation.
Pathways to tax harmonization
The transition to the new tax model requires concrete measures to avoid conflicts and uncertainties. Among the main proposals to mitigate these challenges, the following stand out:
- Precisely define the conditions under which the Selective Tax applies., avoiding undue overlap with CBS and IBS;
- Harmonize the complementary standards. edited by the Union, states and municipalities, ensuring consistency between the different levels of government;
- Leverage technology to integrate and simplify ancillary obligations, reducing bureaucracy for the taxpayer;
- To value the role of jurisprudence and the Supreme Federal Court. in constructing a uniform interpretation of the new system, especially in the face of normative gaps or conflicts.
The closing thought
The coexistence of IBS, CBS, and Selective Tax represents one of the main challenges of tax reform. Avoiding double taxation, ensuring fiscal fairness, and guaranteeing legal certainty will require attention to legislative technique, federal dialogue, and coordinated action among entities.
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References
BRAZIL. Constitution (1988). Constitution of the Federative Republic of Brazil of 1988: compiled version. Available at: https://www.planalto.gov.br/ccivil_03/constituicao/ConstituicaoCompilado.htm.
CONJUR. Legal Consultant. The Function of the Selective Tax. Legal Consultant, April 23, 2024. Available at: https://www.conjur.com.br/2024-abr-23/a-funcao-do-imposto-seletivo/.
CONJUR. Legal Consultant. Tax Reform, new jurisdiction of the Superior Court of Justice and conflict of jurisdiction with the Supreme Federal Court. Legal Consultant, May 6, 2024. Available at: https://www.conjur.com.br/2024-mai-06/reforma-tributaria-nova-competencia-do-stj-e-conflito-com-competencia-do-stf/.
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TAX REFORM PORTAL. Calculation basis for IBS and CBS. Tax Reform Portal , São Paulo, April 7, 2025. Available at: https://www.reformatributaria.com/base-de-calculo-do-ibs-e-da-cbs/.
YAMAMOTO, Fernanda Bardichia Pilat; FRATINI, Danielle Eugenne Migoto Ferrari. The representativeness and attributions of the management committee in the new national IBS model proposed by the tax reform. Revista da Procuradoria Geral do Estado de São Paulo , São Paulo, n. 15, p. 184–202, 30 jun. 2021. Available at: https://revistas.pge.sp.gov.br/index.php/revistapegesp/article/view/737.
