Tax reform: Biggest ICMS in the world? Find out how the new tax works

Tax reform: Biggest VAT in the world? Find out how the new tax works

Alexandre Novais Garcia
From UOL, in São Paulo (SP)

(Photo: Ricardo Stuckert/PR)

The tax reform regulations create the Dual VAT (Value Added Tax) to replace five taxes currently present in the national tax system. The standard rate, however, should reach the highest level in the world, according to estimates by the government itself.

What happened

Reform establishes the creation of Dual VAT. Value Added Tax is the main point of changes in the national tax system. Formed by the combination of CBS (Contribution on Goods and Services) and IBS (Contribution on Goods and Services), Dual VAT enters the production chain in place of IPI, PIS/Cofins, ICMS and ISS.

New tax will be levied on goods and services. With the end of cascading charges at different stages of the production chain, both on inputs and final products, the Dual VAT will unify federal, state and municipal taxes.

Government admits highest charge in the world. When commenting on the reform after the text was sanctioned, the secretary of the Ministry of Finance responsible for tax reform, Bernard Appy, acknowledged that the rate in the new consumption tax could reach 28%, a value that will correspond to the highest charge among countries that adopt the system.

“The projection with the data we have points to a rate of 28%. It does not mean that it will be that.”
Bernard Appy, secretary of the Ministry of Finance

Rates still depend on “reference rates”. CBS and IBS charges will be set by the Federal Senate. “It is not yet known what the standard rate of Dual VAT will be, because its definition will occur later”, says Marcos Correia Piqueira Maia, tax specialist at Maneira Advogados.

Hungary currently has the highest VAT in the world. The most recent levels presented by the OECD (Organization for Economic Cooperation and Development) in 2022 indicate that the highest global tax rate is 27%. The position will be taken over by Brazil if Appy's estimate is confirmed. The OECD weighted average sets global VAT at 19.2%.

VAT should help with tax transparency. Flávio Molinari, tax specialist at Collavini Borges Molinari Advogados, explains that the high tax burden is already a reality in Brazil and the reform tends to guarantee greater transparency on the taxes paid. “Today this is something very difficult to measure”, he says.

“The high rate reflects the cost of the Brazilian state, whether in linked constitutional expenses or in extraordinary expenses. To reduce taxes, it is necessary to undergo a significant reduction in public expenses, something that has not happened in recent years.”
Flávio Molinari, tax lawyer

Approved ceiling set the standard rate at 26.5%. The lock was defined after numerous clashes between deputies and senators. In Appy's assessment, the issue will be reviewed in 2031, the year in which the government should propose cutting tax benefits with the aim of meeting the level approved by Congress.

Haddad estimates that the average rate will be 22%. When commenting on the reform last Wednesday (15), the Minister of Finance said that the VAT percentage would depend on the vetoes to the text. "The law itself stipulates a periodic review of exemptions and rebates. The fewer exemptions, the closer the standard rate will be to 22%," he stated.

Changes will be implemented gradually. The initial step of the reform will be taken in 2026, with emphasis on CBS and IBS charges when issuing invoices. After the testing phase, 2027 marks the entry into force of CBS, which will take the place of PIS, COFINS and IPI. IBS, in turn, will be charged gradually between 2029 and 2032 and comes into full force in 2033, replacing ICMS and ISS.

Discover the countries with the highest VAT in the world:

• Hungary – 27%
• Denmark – 25%
• Norway – 25%
• Sweden – 25%
• Finland – 24%
• Greece – 24%
• Iceland – 24%
• Ireland – 23%
• Poland – 23%
• Portugal – 23%
• Slovenia – 22%
• Italy – 22%
• Belgium – 21%
• Spain – 21%
• Latvia – 21%
• Lithuania – 21%
• Netherlands – 21%
• Czech Republic – 21%
• Slovakia – 20%
• Estonia – 20%
• France – 20%
• United Kingdom – 20%
• Türkiye – 20%
• Austria – 20%
• Germany – 19%
• Chile – 19%
• Colombia – 19%
• Israel – 17%
• Luxembourg – 17%
• Mexico – 16%
• New Zealand – 15%
• Costa Rica – 13%
• Australia – 10%
• South Korea – 10%
• Japan – 10%
• Switzerland – 7.7%
• Canada – 5%

https://economia.uol.com.br/noticias/redacao/2025/01/18/reforma-tributaria—iva.htm