The recent approval of the Complementary Law 214/2025, formerly known as PL 68/2024, marked a major change in Brazil’s tax system.
Brazil has implemented a modern and internationally aligned tax reform through regulation.
This text will examine modifications in taxes and their effects on consumption and sustainability.
What is stated in LC 214/2025?
The Tax Reform regulation introduced by Constitutional Amendment 132/2023 hinges on Complementary Law 214/2025.
Its main innovations include introducing new taxes and consolidating existing ones to streamline the intricate Brazilian tax system.
The law establishes guidelines for:
- The Goods and Services Contribution (CBS) is a federal tax.
- The Goods and Services Tax (IBS) is divided among states, municipalities, and the Federal District.
- The Selective Tax (IS) serves as a tool to discourage the consumption of products that are harmful to health and the environment.
LC 214/2025 also sets out rules to prevent tax evasion and promotes sustainability and fairness in taxation by ensuring tax credits are reclaimed at each stage of production.
Discover additional information on Tax Reform
The Tax Reform had been a topic of debate for many years, but it was not until Constitutional Amendment 132 and LC 214/2025 in Brazil that significant changes were implemented.
It seeks to address past issues like system regression that disproportionately affected low-income consumers.
The consolidation of taxes like PIS, Cofins, IPI, ICMS, and ISS leads to a more streamlined and effective system.
The fundamental principles of reform consist of:
- Storage simplification;
- Tax dispute reduction.
- Investments and exports are exempted from taxation.
To gain a deeper understanding of merging taxes and introducing new taxes, refer to our comprehensive manual on tax reform.
What taxes have been implemented?
The LC 214/2025 outlines three primary taxes.
- CBS stands for Contribution on Goods and Services.
The CBS replaces PIS and Cofins in a federal context and has a broad impact on trade, services, and industries.
- IBS (Tax on Business and Services):
The IBS encompasses both ICMS and ISS, which are overseen by states and municipalities. It applies to commerce, services, and industries, with widespread coverage.
- Selective tax refers to IS.
This is a regulatory tax on goods that are damaging to health or the environment, like cigarettes and fossil fuels.
The tax calculation will be reversed, with the final value of the products determined first before calculating the taxes.
These taxes are based on the Added Value Tax (VAT) model, commonly used in developed nations.
What modifications occur in consumption tax?
The primary difference lies in streamlining and advancement.
Before, the tax system used to have accumulation and complexity, but now it follows certain principles.
No complete accumulation
Full non-cumulativity prevents the cascade effect, enabling tax credits to be utilized completely in every phase of production.
Previously, taxes were imposed at every stage of production, leading to the “shell effect.”
In a bread production chain, taxes on flour, transportation, and sales to the end consumer all add up and impact the final product.
Companies can now fully refund taxes paid in earlier stages, which lowers the end cost for consumers and enhances transparency in the tax system.
Cashback on taxes
Tax cashback is an undisclosed method that gives back a portion of the taxes paid by low-income households, promoting greater fairness in the tax system.
It functions as a direct monetary support for these households, reducing the regressiveness of the system.
If a family spends $500 on food in a month, they can get a portion of the taxes they paid on these items back through tax cashback, reducing the tax burden on their household budget.
Specific exceptions
Specific exceptions are designed to safeguard the most at-risk consumers, particularly in relation to essential goods.
Basic items like rice, beans, and milk will be exempt from taxes without needing to apply for it.
The new taxes will not impact the cost of these items, making sure they stay affordable for the public.
These exceptions also help lower levels of food insecurity, which is a significant problem in Brazil.
LC 214/2025 and the concept of sustainability
Sustainability is a fundamental aspect of the new law.
Selective Tax (IS) aims to reduce the usage of damaging goods and promote sustainable behaviors.
Highlights include:
- Tax benefits for biofuels and renewable energy framework.
- Discounted price for recycled items purchased from cooperative organizations.
- Tax advantages for projects focused on environmental restoration and the circular economy.
These efforts benefit both the environment and enhance eco-friendly industries.
When will this law take effect?
The LC 214/2025 includes a transition phase that begins in 2027 and lasts until 2032.
Companies and taxpayers should slowly adjust to the new tax system, receiving technical assistance and further rules to guarantee successful implementation.
Brazil is entering a new era.
The LC 214/2025 represents the start of a fresh era in the Brazilian tax system, aiming for increased simplicity, fairness, and effectiveness.
This law is a significant move towards the economic growth and enhancement of the business environment, with direct effects on consumption and sustainability.
Lawyers and legal professionals must comprehend the modifications and assist their clients during this period of change.
References.
The initial regulation of a new consumer tax system has been approved in January.
What differences does tax reform bring about?
The reform simplifies the tax system by combining various complex taxes into two main ones: CBS and IBS. It aims to eliminate the cascading effect and introduce tax cashback for low-income families. Explore our detailed content on the tax reform and its impacts.
How does tax reform affect Brazilians?
The system aims to become more just and effective by exempting essential goods, providing refunds to low-income households, and reducing tax disputes for businesses to promote economic development.
What does Dual VAT refer to?
The dual VAT system divides taxation between federal (CBS) and subnational (IBS) levels while maintaining national consistency and respecting the independence of states and municipalities.
What are the latest taxes on goods?
CBS replaces PIS and Cofins with a single rate, while IBS combines ICMS and ISS, distributed among states and municipalities, and IS is a regulatory tax on products harmful to health and the environment.
What is stated in PL 68/2024?
PL 68/2024, which became LC 214/2025, outlines the guidelines for implementing tax reform, establishes CBS, IBS, and IS taxes, and governs the shift to the new system scheduled to commence in 2027.
