Brazil’s tax reform: what changes with CBS and IBS
Five consumption taxes will give way to a dual VAT. Understand the logic behind the change, the transition through 2033 and what to watch as a consumer.
Brazil is changing the way it taxes consumption. The reform was approved by Constitutional Amendment 132 of 2023 and regulated mainly by Complementary Law 214 of 2025. The transition is long: it starts with a test phase in 2026 and only ends in 2033.
The problem the reform tries to solve
Until now, a single product could carry several different taxes along the supply chain: PIS and Cofins (federal), IPI (federal, on manufactured goods), ICMS (state) and ISS (municipal). Each one has its own rules, rates and exceptions — ICMS, for example, has different legislation in every state. The result is a system that is hard to understand, expensive to comply with and full of disputes over what counts as a "good" and what counts as a "service".
What replaces them
The reform creates a dual VAT — a value-added tax split into two parts:
- CBS (Contribution on Goods and Services): federal, replaces PIS and Cofins.
- IBS (Tax on Goods and Services): shared by states and municipalities, replaces ICMS and ISS.
On top of that comes the Selective Tax, levied on goods and services that harm health or the environment, such as cigarettes and alcoholic beverages. IPI stops being charged on most products and is kept only to preserve the competitiveness of the Manaus Free Trade Zone.
Principles that change the logic
- Broad non-cumulativeness: tax paid at earlier stages becomes a credit for the next stage. In practice, each link in the chain pays only on the value it added.
- Taxation at destination: IBS goes to the state and municipality where the good or service is consumed, not where it was produced. This tends to reduce the so-called fiscal war between states.
- More transparency: the tax is calculated "on top" of the price and shown on the invoice, making it clearer how much of what you pay is tax.
Exceptions and relief
The general rule is a standard rate, but there are special regimes. Sectors such as healthcare and education get reduced rates, and items in the national basic food basket are zero-rated. There is also a cashback mechanism: part of the tax is refunded to low-income families registered in the government's Cadastro Único. Simples Nacional, the simplified regime for small businesses, remains in place with its own rules for coexisting with the new system.
The timeline, broadly
- 2026 — test phase: CBS and IBS appear on invoices at token rates (0.9% and 0.1%) to calibrate systems. The goal is testing, not raising more revenue: the amounts can be offset against PIS and Cofins.
- 2027: CBS takes full effect, PIS and Cofins are abolished and the Selective Tax starts being collected.
- 2029 to 2032: ICMS and ISS are gradually reduced while IBS grows in the same proportion.
- 2033: the new system is fully in place, and ICMS and ISS cease to exist.
Final rates depend on calibration during the transition and on further regulations. That is why exact figures circulating today may still change.
What to watch as a consumer
For shoppers, the most visible change should be the invoice, which will show the new taxes. Whether prices go up or down depends on the sector: segments that pay little tax today may see increases, others decreases. Before drawing conclusions from chain messages, check official sources such as Brazil's Federal Revenue Service and the IBS Management Committee.