This blog was last updated on September 2, 2025

Brazilian tax reform and how it will transform the national tax system were two central themes of the webinar ” Navigating Tax Reform -What Needs to Be Regulated “, sponsored by Sovos. The event brought together experts to discuss the main regulatory changes and challenges that companies and governments will face. Giuliano K. Gioia, Director of Tax Content, and Hugo Coelho, Regulatory Analysis Supervisor, highlighted essential points about Constitutional Amendment No. 132/2023 and Supplementary Law No. 214/2025, which completely transform the national tax system.

Tributes that will make up the new National Tax System

We already know that the tax reform seeks to simplify the complex taxation system in Brazil. The main highlight is the introduction of a dual Value Added Tax (VAT) (IBS and CBS) and the Selective Tax (IS), which seeks, in addition to simplifying the current tax system, to improve collection. In view of this change, the tax reform will introduce three taxes:

• CBS (Contribution on Goods and Services) – federal tax. This is a federal tax that replaces several existing federal taxes, such as the PIS and Cofins.

• IBS (Goods and Services Tax) – divided into state IBS and municipal IBS. This is a tax that will be responsible for taxing transactions on goods and services at the level of the States, Federal District and Municipalities. Its function is to cover the range of transactions involving ICMS (Tax on Circulation of Goods and Services) and the ISS (Taxon Services).

• IS (Selective Tax) – applied on products harmful to health and the environment.

These taxes will replace five of the current taxes: ICMS, ISS, IPI, PIS, and COFINS. In addition, the reform also aims to eliminate the fiscal war between states and reduce the complexity of ancillary obligations.

The principles of Tax Reform

The basis of the reform is based on essential principles:

• Simplicity: simplification of taxes and tax documents;
• Transparency: a principle that already exists in the Public Administration, whose purpose is to facilitate access to information, as well as tax benefits in order to reduce the distance between the tax authorities and taxpayers;
• Neutrality: taxes cannot interfere with taxpayers’ decision-making, free competition, contributory capacity, and the right to property;
• Cooperation: ensure that laws bring cooperation between federal entities (Federal Government, States, Federal District and Municipalities), but also between the Tax Authorities and taxpayers. It aims to eliminate the idea of the superiority of the tax authorities to the detriment of taxpayers;
• Protection of the environment: whenever possible, aim at sustainability and the reduction of carbon emissions. (ex: IPVA with a different rate for more polluting vehicles, art. 155, paragraph 6, II, of the Federal Constitution); and
• Regressivity: adjusting the issue of whether the tax burden affects the poor and the rich in an identical way. In income taxation we have progressivity and in consumption we will have regressivity (ex: cashback for the poorest so that they contribute a lower tax burden than the others).

Practical impact for companies

The reform directly impacts the calculation of taxes and the issuance of tax documents. Some expected changes include:

• Unification of tax documents: simplification of electronic invoices.
• New tax return model: centralized ancillary obligations.
• Split Payment: possibility of paying the tax at the time of financial settlement.

Transition challenges

The transition period until 2032 will bring operational complexity to companies, which will need to manage old and new taxes simultaneously. Some difficulties include:

• Adaptation of ERPs to calculate taxes on a net and gross basis.
• Implementation of automated tax determination rules.
• Monitoring of state and municipal tax rates, which can vary widely.

Technology and Tax Compliance

The digitization of the tax system will be essential to ensure compliance. Companies will need specialized solutions, which guarantee the correct determination of taxes and compliance with legislation.

Tax reform represents a major step forward for Brazil, but it also imposes significant challenges. Companies must prepare in advance to avoid negative impacts and ensure compliance with the new rules. The use of technology will be an essential competitive differential to face this transition safely and efficiently.

How can Sovos help?

Sovos has more than 40 years of tax experience, more than 100 regulatory specialists around the world, who are aware of any new mandates or regulatory changes, so that solutions can be adapted, if necessary, and clients can be informed in advance.

It also has specialized solutions, such as Tax rules, a calculation engine with updated tax rules developed to automate and maintain the operation of your ERP always in compliance with the legislation, validating taxes to avoid incorrect information produced by human or systemic failure, which will help your company to face these changes during this period with the coverage of all taxes and simulation of scenarios.

Do you want to know how Sovos continues to follow all regulations and provide solutions to support companies in this new era of taxation in Brazil? Watch the webinar on demand here and learn more!