New Consumption Tax Regime - First Impressions

Born after years of attempts to revise consumption taxation in Brazil, and under bright spotlights and the disbelief of much of the tax community, the Consumption Tax Reform changed the tax logic, bringing in some respects advances in the revenue-collection dynamics — such as the implementation of the split payment and the crediting only after the tax has been paid, both aimed at reducing tax evasion — and in tax principles — namely the express introduction of the principle of Tax Justice as a corollary of the National Tax System —, but, in contrast, sharply broadening the scope of incidence (here as a synonym for taxable event) by including taxation of so-called transactions in goods and services, and further increasing the tax burden, especially on the provision of services, which in some cases went from a 5,65% rate to 27.91%.

Indeed, taxation on consumption makes the provision of services more expensive and, as a result, it will tend to generate significant economic impacts that will be felt gradually as the systems’ migration period advances.

Right off the bat, in 2027 one senses that the introduction of the Contribution on Goods and Services (CBS) will negatively impact services, including those that opt for the simplified Simples Nacional regime and now have to decide whether to be taxed normally under

Simples Nacional or to make collection “outside” the regime, in order to offer full credits to their clients so they can be on an equal footing with other service providers.

It is also undeniable that the change of systems affects the taxpayer’s sense of tranquility.

With little certainty, by mid-September 2026 one still did not even know what rate would be applied to the tax that will take effect as of January 1, 2027, causing great disbelief among taxpayers and, for others, great distress from being certain that the regime will be adopted yet without knowing for sure the size of the impact on companies’ cash flow and on their business prices—it is worth highlighting that prices will have to be changed to reflect the new taxation which, as noted, will impact some sectors quite sharply.

Given the scenario of uncertainty, without knowing whether there will even be sufficient technology for implementation—for example, of the split payment—the agencies have begun to issue statements with the aim of calming tempers. The same occurred with the handling of Electronic Service Invoices, which, until August 2026, had no definition and, in theory, should have been observed since January 2026.

Thus, the first impressions are that the new consumption tax regime tends to be fairer if we address the matter from the standpoint of ending fiscal wars and disputes over the granting of benefits, but, on the other hand, it will increase the tax burden of several sectors and will also tax economic situations that previously did not fall within the range of economic manifestations liable to contribute to the social whole.

However, as has historically been the case in Brazil, once again there is an alternation of the tax system—or part of it—with a real increase in the tax burden, even when the initial pretext is that there would be no increase in the tax burden.