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The Brazilian tax landscape is set to undergo significant changes following the final approval of the tax reform bill by the Lower Chamber of Congress on December 17, 2024. The tax reform bill, which had previously been revised by the Senate, now awaits presidential sanction to become law. Read TaxNewsFlash

Under the bill, Brazil would enact the following harmonized (federal and state) taxes:

• A tax on goods and services (imposto sobre bens e serviços—IBS) would replace the state value added tax (VAT) (imposto sobre circulação de mercadorias e serviços—ICMS) and the municipal tax on services (imposto sobre serviços de qualquer natureza—I³§³§).
• The contribution on goods and services (contribuição sobre bens e serviços—CBS) would replace the federal PIS/COFINS contributions.

Key changes introduced by the Lower Chamber are as follows:

• General tax rates: The general reference tax rate was capped at 26.5%.
• Enhanced tax reductions and exemptions:
  • Low-income individuals will benefit from a full refund of CBS and 20% of IBS on essential utility bills, including energy, water, gas, and telecommunications.
  • Non-zero-rated medications will benefit from a 60% reduction in the general tax rate.
  • Foreign tourists will receive tax refunds on products purchased in Brazil and taken abroad—similar as seen in many countries within EU.
• Exemptions and specific inclusions:
  • Essential food items like meat, fish, cheese, and salt remain exempt.
  • Selective tax on sugary drinks, previously removed by the Senate, has been reinstated.
  • Weapons and ammunition were excluded from the selective tax scope. As those items were not considered hazardous items, a 20% refund of CBS and IBS will be permissible in certain cases.
• Cashback system: Starting in 2027 for CBS and 2029 for IBS, it will allow a tax refund to low-income individuals, with specific rules governing the calculation and distribution of refunds.
• Basic food basket: Such items will continue to benefit from a zero-tax rate, with additional items such as infant formulas, specific oils, and cheeses now included.

For more information, contact a ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø tax professional:

Paula Pignatti Smith | ppsmith@kpmg.com

Atila Vaccaro Pidoni Mota | atilamota@kpmg.com