Brazil's Selective Tax 2027: What's at Stake

What is the Selective Tax (IS) and when does it take effect?

Brazil's tax reform introduces the Selective Tax (Imposto Seletivo, IS) starting in 2027, alongside the CBS (Contribuição sobre Bens e Serviços), which replaces PIS and Cofins. Both were established by Complementary Law (LC) 214/2025, but their rates have yet to be set by ordinary legislation — and no bill is currently under debate in Congress.

Why is the IPI phase-out a fiscal risk?

The CBS replacement carries a built-in safety net: PIS and Cofins can only be abolished once CBS is formally created (per Article 126, item II of the ADCT transitional provisions). The IS, however, enjoys no such link to the IPI. Article 126, item III of the ADCT does not tie the IPI's reduction to zero to the IS's creation. That gap creates a real risk of lost revenue on economic activities currently taxed by the IPI that are supposed to migrate to the IS.

Can the government set IS rates by provisional measure (MP)?

Given the urgency, authorities are considering using a medida provisória (executive order with the force of law) to define IS rates. The Supreme Court (STF) has long held that the constitutional principle of tax legality does not require a formal statute — an instrument with equivalent legal force suffices. Constitutional Amendment 32/2001 reinforced this: it lists subjects banned from provisional measures but does not include tax law. Article 62, paragraph 2, even explicitly regulates the anterioridade (advance-notice) rule for taxes created by MP.

How does the anterioridade rule apply to a provisional measure?

For taxes, an MP only takes effect in the following fiscal year if it is converted into law by the last day of the year it was published. This means the clock starts not at publication of the MP, but at its conversion into ordinary law by Congress. This distinction matters enormously for planning the IS rollout before the 2027 deadline.

What is the bottom line for businesses?

Companies currently paying IPI face genuine uncertainty. Without IS rates set in time — whether by ordinary law or MP converted before year-end — a revenue gap could emerge. The window for legislative or executive action is narrowing fast, and taxpayers should monitor developments closely through late 2026.