This blog was last updated on September 2, 2025
Several changes are expected in Brazil in the long term as a result of the tax reform. This represents a significant transformation in the country’s tax system and aims to simplify and modernize the tax structure, which will bring substantial changes both to the economy in general and to companies.
We’ve previously covered the most important changes, which include:
- Tax concentration: replacement of four taxes for two (IBS and CBS), an action that gives rise to what is known worldwide as dual Value Added Tax (VAT), with federal, state, and municipal rates.
This concentration seeks to eliminate the complexity and cumulativity of cascading taxes, promoting greater transparency and efficiency in tax collection. - Creation of a Selective Tax (IS): This new tax will be applied to products and services considered harmful to health or the environment, such as alcoholic beverages, cigarettes and certain luxury vehicles.
- Tax reduction for essential sectors: A 60% reduction in the tax burden is expected for 13 sectors, including education, health, medicines, and some foods, as well as the exemption from IBS and CBS for public transport, in order to make these services more accessible to the population.
- Implementation of a tax refund system (cashback): Low-income families may receive a refund of part of the taxes paid on basic products, provided that the CPF is in good standing, seeking to mitigate the fiscal impact on the most vulnerable populations.
But what impact will be expected for companies in the long term?
Tax reform can bring positive changes to the Brazilian economy in the long term, such as increased economic growth, higher tax collection, and reduced indebtedness.
These changes are expected to impact companies in a variety of ways, most notably:
- Administrative simplification: The consolidation of multiple taxes into a dual VAT should reduce bureaucracy and operational costs related to tax compliance, allowing companies to focus more on their core activities with better economic planning and market strategies.
- Increased tax burden in certain sectors: Although the combined VAT rate may reach up to 26.5%, some sectors may benefit from reductions, while others may face increases in the tax burden.
- Encouraging foreign investment: The simplification and greater predictability of the Brazilian tax system once again attracts more foreign investment, offering a clearer and more stable business environment.
- Technological adaptation: Companies will need to update their management and electronic invoicing systems to align with the new tax regulations, which will require investments in technology and training.
What is the expected long-term impact on the country?
- Greater fiscal transparency: The concentration of taxes will reduce complexity and facilitate inspection, tending to reduce tax evasion and increase collection in a more efficient manner.
- Reducing inequality: The return of taxes to low-income families and the lower tax burden for essential sectors will contribute to a more equitable distribution of resources and the reduction of social inequalities.
- Macroeconomic stability: By facilitating collection and expanding the tax base, the government will have more resources to finance social and infrastructure programs, favoring economic growth and long-term stability.
- Increased global competitiveness: A more transparent and predictable tax system will position Brazil as a more attractive destination for foreign investment, strength meningite position in the global economy.
- Boosting innovation and digitalization: The need to adapt business systems to new regulations will encourage technological modernization, promoting innovation and digitalization in various sectors.
- Balanced regional development: By unifying state and municipal taxes, a more equitable redistribution of tax revenues is expected and the consequent benefit of less developed regions with the reduction of territorial inequalities.
- Environmental sustainability: The creation of the Selective Tax on products that harm the environment will encourage more sustainable practices, encouraging companies to adopt cleaner and more responsible technologies.
- Strengthening the public sector: With greater collection and efficiency, the government will be able to allocate more resources to the improvement of public services, such as health, education, and infrastructure, positively impacting the population’s quality of life.
Implementation and transition process
The reform establishes a transition period that will last until 2032. During this period, current taxes will coexist with new ones, allowing companies to gradually adapt to the new system. The Selective Tax is expected to take effect in 2027, and that old taxes will be completely eliminated by 2032.
The tax reform in Brazil represents a significant step towards the country’s fiscal modernization. While simplifying the system and reducing red tape are positive aspects, companies will need to be aware of the specific changes affecting them and prepare to adapt to the new requirements.
Strategic planning and investment in technology are essential to take advantage of the opportunities that arise in this new tax scenario, and that time is now. Those who don’t start their adjustments now will be late.
How does Sovos help with this change process?
With over 40 years of experience in taxation, Sovos offers an ecosystem of world-class global and local solutions and has a team of more than 100 regulatory experts worldwide to support companies in adopting the new tax reform.
Sovos provides solutions such as Tax rules, a calculation engine that automates tax management in the ERP. With a team of specialists updating tax rules on a daily basis, it validates taxes to avoid human, legislative interpretation, or systematic errors, ensuring full compliance, based on correct customer information. That way, your company can face regulatory changes with confidence, covering all taxes and simulating different scenarios.
With expertise in tax regulation and a global presence, Sovos is prepared to support companies from all sectors in the transition to the new tax system, ensuring compliance, efficiency and tax security. If you need a reliable specialist to help you deal with this reform and to use it for the benefit of your business, contact us and we will be happy to help you navigate the waters of tax reform.