Few issues generate such intense legal, economic, and political debate in Brazil as tax system reform. Recognized as one of the most complex, regressive, and litigious in the world, the Brazilian tax model has become, over the decades, an obstacle to economic development, business competitiveness, and the promotion of fiscal justice. In this context, tax reform has ceased to be a contingent political choice and has become a structural necessity.

The enactment of Constitutional Amendment No. 132/2023 represents the most ambitious effort to transform the tax system since the 1988 Constitution. The proposal seeks to simplify consumption taxation, reduce cumulativeness, increase transparency, and create a more predictable economic environment. However, its implementation raises significant legal challenges, particularly regarding fiscal federalism, the transition between regimes, and distributional impacts.

This article analyzes tax reform from a legal-constitutional perspective, examining its foundations, main objectives, and the challenges to its implementation. It seeks to demonstrate that the reform is not limited to a technical reorganization of taxes, but involves profound political choices regarding fiscal justice, the distribution of powers, and the role of the State in reducing inequalities.

1. The Brazilian tax system and its structural dysfunctions

The Brazilian tax system is characterized by high regulatory complexity, marked by multiple taxes levied on the same economic base, special regimes, and a profusion of exceptions. Taxation on consumption, in particular, is fragmented among federal, state, and municipal taxes, such as ICMS, ISS, IPI, PIS, and Cofins.

This fragmentation generates cumulative effects, economic distortions, and high compliance costs, negatively impacting the competitiveness of companies and encouraging litigation. It is estimated that Brazil ranks among the countries with the highest number of tax lawsuits in the world, highlighting the legal uncertainty of the system.

Furthermore, the Brazilian model is admittedly regressive. High indirect taxation means that the tax burden weighs proportionally more heavily on lower-income groups, contradicting the principle of ability to pay and exacerbating social inequalities. These structural dysfunctions have fueled the consensus around the need for reform.

2. Constitutional foundations of tax reform

The 1988 Federal Constitution establishes clear principles for taxation, such as legality, equality, ability to pay, and prohibition of confiscation. It also organizes the distribution of tax powers between the Union, states, and municipalities, structuring Brazilian fiscal federalism.

Tax reform should be understood as an attempt to realize these constitutional principles, especially regarding economic neutrality and fiscal justice. The creation of value-added taxes, with a broad and non-cumulative base, aligns with models adopted in developed economies and seeks to reduce competitive distortions.

Constitutional Amendment No. 132/2023 brought about significant changes to this arrangement by establishing the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS), replacing taxes levied on consumption. This change requires a reinterpretation of the federal pact and traditional tax powers.

3. IBS, CBS and the new model of taxation on consumption

The new model proposes the unification of consumption taxes into two main taxes: the IBS, with shared jurisdiction between states and municipalities, and the CBS, with federal jurisdiction. Both follow the logic of the value-added tax (VAT), with non-cumulative incidence and broad financial credit.

Among the central objectives are the simplification of the system, the elimination of tax wars, and increased transparency for taxpayers, who will be able to clearly visualize the tax burden on goods and services. Taxation at the destination, rather than at the origin, seeks to reduce regional distortions and encourage competitiveness. However, the transition to the new model is complex. The period of coexistence between the old and new regimes will require a high degree of federal coordination, as well as significant adaptations on the part of tax administrations and taxpayers.

4. Tax justice, regressivity and compensation mechanisms

One of the central arguments in favor of the reform is the possibility of reducing the regressivity of the tax system. Simplifying consumption taxes, by itself, does not guarantee fiscal justice, which is why the reform includes compensatory mechanisms, such as tax refunds for low-income families (tax cashback).

These instruments aim to align the system with the ability to pay, mitigating the regressive effects of indirect taxation. Furthermore, the discussion on the progressivity of income and wealth taxation remains a complementary challenge to consumption reform. From a legal standpoint, the effectiveness of these mechanisms will depend on clear sub-constitutional regulations, objective criteria, and the State's administrative capacity to identify beneficiaries and implement refunds.

5. Federal challenges and implementation of the reform

Tax reform directly impacts fiscal federalism by redistributing powers and revenues among the federative entities. States and municipalities are expressing concerns about the loss of autonomy and the distribution of resources during the transition period.

The creation of an IBS management committee, with representation from states and municipalities, seeks to mitigate these conflicts, but raises questions about governance, democratic legitimacy, and the balance of power. The successful implementation of the reform will require institutional cooperation and coordination capacity among the entities.

Furthermore, legal certainty during the transition will be crucial to avoid increased litigation and to ensure the confidence of economic agents in the new system.

Conclusion

Tax reform represents one of the most significant structural transformations of the Brazilian state in recent decades. More than a technical reorganization of taxes, it is a political choice regarding the model of development, fiscal justice, and the functioning of federalism.

If implemented correctly, the reform has the potential to reduce inequalities, increase economic efficiency, and strengthen legal certainty. However, its results will depend on the quality of the sub-constitutional regulations, the administrative capacity of the State, and the political commitment to the constitutional principles that guide taxation.

Ultimately, tax reform is not an end in itself, but an instrument for building a fairer, simpler system that is compatible with the fundamental objectives of the Republic.

References

BRAZIL. Constitution of the Federative Republic of Brazil of 1988.
BRAZIL. Constitutional Amendment No. 132, of December 20, 2023.
BRAZIL. National Tax Code (Law No. 5.172/1966).
SCHOUERI, Luís Eduardo. Tax Law. São Paulo: Saraiva.
TORRES, Heleno Taveira. Constitutional Tax Law. São Paulo: Malheiros.
PAULSEN, Leandro. Tax Law: Constitution and Tax Code in the light of doctrine and jurisprudence. Porto Alegre: Livraria do Advogado.