Brazil's New Consumption Taxes Start in 2027

What exactly is changing in Brazil's tax system from 2027?

Brazil's sweeping consumption tax reform replaces five existing taxes with two new ones modelled on the Value Added Tax (VAT) system used across most of the world. The federal CBS (Contribuição sobre Bens e Serviços) kicks in at full rate from 2027, while the state and municipal IBS (Imposto sobre Bens e Serviços) starts at a marginal 0.1% that year and in 2028, then rises gradually until full collection begins in 2033.

Which taxes are being abolished?

The reform phases out five levies: the federal PIS, Cofins and IPI (for most products), plus the state ICMS and the municipal ISS. Businesses currently juggling these overlapping charges will eventually deal with just the CBS and IBS.

How does the new VAT model actually work?

Both taxes operate on a non-cumulative basis. At each stage of the production chain the tax is collected, but companies can credit what was already paid upstream. In a simple example, a product sold to the end consumer for R$100 under a 20% VAT rate generates R$20 in total tax — no matter how many production steps were involved. This eliminates cascading taxation that inflated prices along the supply chain.

What rate should businesses expect for the CBS in 2027?

The Receita Federal and the Federal Court of Auditors (TCU) are still finalising the figure. The Senate will set it by resolution in December 2025. The government's 2024 estimate was 8.8%, but new exemptions added since then have pushed the number higher. Consultancy Roit projects 9.43%, while the IBS Management Committee estimated around 9.2% in July 2025.

What about the "fiscal war" between states?

Currently, states compete by granting tax breaks to attract businesses, creating distortions. Under the reform, consumption taxes will be collected at the destination — where goods are consumed — rather than where they are produced. The shift will happen gradually over several decades, progressively eliminating incentives for states to undercut each other.

What is still undecided?

The exact CBS rate remains to be confirmed by the Senate. The pace at which the IBS rate rises between 2029 and 2032 and the precise transition rules for the origin-to-destination shift are also still being worked out by the federal government, states and municipalities together.