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The uncertainties of tax reform six months before the start of the transition
The uncertainties of tax reform six months before the start of the transition
Government is racing to meet deadlines, but problems in the IBS Management Committee could slow progress. Download free special report
Letícia Mori
Six months before the start of the tax reform transition, in January 2026, the points that need definition, regulation and clarification by Congress and the government still bring uncertainty. There is no shortage of warnings that companies should be well prepared – and that anyone who waits too long to plan tax restructuring will face more costs and risks.
“Whoever is not prepared is already late” said the extraordinary secretary of Tax Reform at the Ministry of Finance, Bernard Appy, last week, at an event at Firjan (Federation of Industries of the State of Rio de Janeiro). At this critical moment, JOTA took stock of the pre-transition scenario: what doubts persist, how developed the systems for the transition are and how the private sector is preparing for the increasingly approaching operational challenges.
The report on the tax reform transition period was previously sent to JOTA PRO Tributos subscribers and is now available free of charge to website readers. Click here and download for free!
From a macroeconomic point of view, regulatory and institutional issues make it difficult to predict the impact of the reform in the coming years, says economist Marcus Pestana, president of the Independent Fiscal Institution (IFI). The body has worked with an estimate of 0.2% positive impact caused by the tax reform on potential GDP in its fiscal monitoring reports. "It's a provisional estimate until we have more elements. This is one of those cases in which we will learn to swim by swimming. Only reality itself will give the scale of the impacts."
Constitutional Amendment 132/2023, which instituted the reform, foresees a gradual transition to the new tax system, starting in 2026 with the “test” of the Contribution on Goods and Services (CBS), which will have a rate of 0.9%, and the Tax on Goods and Services (IBS), whose rate will be 0.1%, offset against PIS and Cofins. This payment can be waived if the taxpayer complies with additional obligations – that is, the most important thing will be the breakdown of taxes in the tax documentation.
To develop the necessary technical part, the government began this Tuesday (1/7) the CBS pilot project, created by the Federal Revenue Service and the Federal Data Processing Service. (Serpro). The project will have participation limited to 500 companies to test the systems necessary for collecting CBS. At first, 50 contributors will participate, but new phases are expected in the future, with the possibility of more companies joining.
The collection of the definitive CBS rate begins in 2027, the year in which PIS and Cofins will be abolished. However, the exact rate is not yet known.
In 2027, the start of collection of the Selective Tax (IS), the end of the IOF and the reduction to zero of the IPI on all products, with the exception of those manufactured in the Manaus Free Zone (5% of the total), are also expected. Between 2029 and 2032, ICMS and ISS will be gradually replaced by IBS and the transition process will come to an end in 2033, with the extinction of taxes.
JOTA prepared a special report that addresses: what has already been done and what remains to be done in regulating the reform; the main challenges, doubts and risks for companies; the current split payment scenario; how the private sector is preparing and more.
EXCLUSIVE REPORT
The uncertainties of tax reform six months before the start of the transition
Six months before the start of the tax reform transition, in January 2026, the points that need definition, regulation and clarification by Congress and the government still bring uncertainty. There is no shortage of warnings that companies should be prepared in advance – and that anyone who waits too long to plan tax restructuring will face more costs and risks. “Those who haven't prepared themselves are already late” stated the extraordinary secretary of Tax Reform at the Ministry of Finance, Bernard Appy, last week, at an event at the Federation of Industries of the State of Rio de Janeiro (Firjan). At this critical moment, JOTA took stock of the pre-transition scenario: what doubts persist, how developed the systems for the transition are and how the private sector is prepared for the increasingly approaching operational challenges.
From a macroeconomic point of view, regulatory and institutional issues make it difficult to predict the impact of the reform in the coming years, says economist Marcus Pestana, executive director of the Independent Fiscal Institution (IFI). The body has worked with an estimate of 0.2% positive impact caused by the tax reform on potential GDP in its fiscal monitoring reports. "It's a provisional estimate until we have more elements. This is one of those cases in which we will learn to swim by swimming. Only reality itself will give the scale of the impacts."
Calendar – what starts in 2026?
Constitutional Amendment 132/2023, which instituted the reform, foresees a gradual transition to the new tax system, starting in 2026 with the “test” of the Contribution on Goods and Services (CBS), which will have a rate of 0.9%, and the Tax on Goods and Services (IBS), whose rate will be 0.1%, offset against PIS and Cofins. This payment can be waived if the taxpayer complies with additional obligations – that is, the most important thing will be the breakdown of taxes in the tax documentation.
To develop the necessary technical part, the government began this Tuesday (1/7) the CBS pilot project, created by the Federal Revenue Service and the Federal Data Processing Service (Serpro). The project will have participation limited to 500 companies to test the systems necessary for collecting CBS. At first, 50 contributors will participate, but new phases are expected in the future, with the possibility of more companies joining.
The collection of the definitive CBS rate begins in 2027, the year in which PIS and Cofins will be abolished. However, the exact rate is not yet known, although it is expected to be around 28%, according to research by the Institute for Applied Economic Research (Ipea).
In 2027, the start of collection of the Selective Tax (IS), the end of the IOF and the reduction to zero of the IPI on all products, with the exception of those manufactured in the Manaus Free Zone (5% of the total), are also expected. Between 2029 and 2032, ICMS and ISS will be gradually replaced by IBS and the transition process will come to an end in 2033, with the extinction of taxes.
Regulation – what has already been done and what remains to be done?
The first law regulating the reform (LC 214/2025) was sanctioned in January and brings the CBS and Selective Tax rules, in addition to provisionally creating the IBS Management Committee, defining rules on the refund of taxes for low-income consumers (cashback) and detailing the linking of payment mechanisms with the collection system.
With the start of the transition in 2026, the deadlines for defining the details of the reform are considered quite tight – and the list is extensive. Currently being processed in the Senate, Complementary Bill 108/2024 details the functioning of the IBS Management Committee and the distribution of revenue to states and municipalities. The project's rapporteur, senator Eduardo Braga (MDB-AM) did not guarantee when he should take the matter to the plenary, but the government expects this to happen in the coming months.
Ordinary laws are also awaited to define the rates of the Selective Tax and the operational aspects of the National Regional Development Fund and the Tax Benefits Compensation Fund. The government's forecast is that the bills will be sent to Congress later this year – they need to be approved before 2027, when IS starts to be charged and when the funds should already be in operation.
The CBS and IBS regulations still need to be published. In the case of CBS, the regulation will be defined by the federal government and is already the subject of a working group at the Ministry of Finance, with the expectation that it will be completed in 2025, as the lack of regulation would compromise the testing phase of the contribution. For IBS, the regulation needs to be created by the tax Management Committee, but the issue is blocked by a dispute between the municipalities. In any case, as they are infra-legal standards, the regulations do not require approval from Congress.
Disagreement between municipalities hinders the progress of the reform
Among the pending issues in the reform, the one that raises the most anxiety is the formation of the Superior Council of the IBS Management Committee, considered “absolutely central” to the functioning of the new system, says tax specialist Marcel Alcades, partner at the Mattos Filho firm.
The reform provides for the committee to have the participation of states and municipalities, but representatives of the municipalities were not appointed because the National Front of Mayors (FNP) and the National Confederation of Municipalities (CNM) disagree on what this participation should be.
"There is no reform without the committee. It is responsible for implementing, regulating, collecting and distributing the IBS, in addition to monitoring compliance with tax obligations", says Alcades. “And even if the IBS only actually comes into force in 2029, the regulation created by the committee is necessary for the fulfillment of ancillary obligations – which begin in 2026 – to be integrated with the CBS.”
To meet the deadline set out in the constitutional reform amendment, the Superior Council was formed in May with only representatives from the states. Experts in Financial and Tax Law consulted by JOTA state that, although it could advance discussions, the lack of participation by municipalities would invalidate any decision actually taken by the provisional committee.
“Any action that this committee takes without a municipal representative is unconstitutional”, says Mary Elbe Queiroz, post-doctorate in Tax Law and president of the National Center for the Prevention and Resolution of Tax Conflicts (Cenapret).
“Parial composition is a constitutional requirement, and delay in definitive installation would be a violation of the federative pact”, says Eduardo Maneira, professor of Tax Law at the Federal University of Rio de Janeiro (UFRJ) and director of the Brazilian Association of Financial Law (ABDF).
The committee has budgetary, technical and financial independence, without links to any other public body. But the dispute between the two entities of municipal representatives is an example of the type of influence and political dispute to which he is subject. There is a dispute over how many committee members the FNP and CNM can nominate. Furthermore, while the FNP advocates that municipal representatives be city finance secretaries – on a par with state representatives, who are state secretaries – the CNM argues that they should be technical servants. Until the issue is resolved, Marcel Alcades' bet is that the committee will “piggyback” on the definitions made by the Union group. “There will be little time to edit everything that needs to be done”, he says.
Main challenges, doubts and risks for companies
With the need to fulfill accessory obligations as early as 2026, the issue of operability, development and implementation of technology for the new system has become one of the main day-to-day anxieties for companies, says Marcelo Guaritá Borges, partner at the PGBR office and professor at ESALQ/USP and the Brazilian Institute of Tax Law (Ibet).
The plan is for the reform portal to have a series of facilitating tools, such as error alerts, a tax calculator and a pre-filled declaration (along the lines of Income Tax). The idea, according to the IRS, is to minimize errors and allow taxpayers to correct problems immediately, without having to wait for an inspection. The Federal Revenue expects to deliver “the minimum to make CBS’s prominence in tax documentation viable” in January, but it is not yet clear which tools will be available at the beginning of 2026.
"It's not just a simple issue, just adapting the invoice. This affects the entire accounting and planning of the company. It is necessary to parameterize all systems: accounting, financial planning, supplier payment", says Alcades.
For Maneira, from UFRJ, technological implementation is one of the three main points of attention. “The transition requires a thorough review of the accounting and tax recording systems, in addition to the necessary adjustments for issuing tax documents following the dictates of the new taxes”, he states.
“Multi-regime” tax management during the transition phase, between 2026 and 2032, in which the old system will coexist with the new, is one of the other two main challenges. Alcades points out that, during this period, a good part of the disputes must still be related to taxes that will end.
Split payment
The third point of attention, according to Maneira, is the issue of split payment, a new automatic collection system, which will also depend heavily on the technology developed. The idea of split payment is to separate the value of the product or service sold from the tax to be collected at the time of financial settlement.
Executive secretary Bernard Appy has said that the adoption of split payment will be optional and in phases – and that companies that are unable to implement it by 2027 will not suffer losses.
The IRS does not expect there to be a payment, in fact, due to split payment next year, said Marcos Hübner Flores, IRS project manager, during an event at JOTA. “Each company will choose whether to guarantee its credit using split payment on purchases and, to do so, will use a financial service provider that offers this option”, he stated.
If the adoption of the split payment model is widespread and successful, states Maneira, the taxpayer will not need to worry about the new way in which credits will be accounted for (at the time of actual payment of the tax by the previous link in the chair). This is because, as a rule, taxes that have not been previously paid will be collected automatically when the transaction is settled.
In this sense, the director of the São Paulo Association of Tax Studies (Apet), Marcelo Magalhães Peixoto, understands that there may be an advantage for suppliers who immediately choose to adopt split payment. “We will only know how the market will behave over the next few years, but I have no doubt that this could be a criterion for selecting a supplier”, says Magalhães. The impacts of this system on companies' cash flow should vary and be both positive and negative, says the lawyer.
If automation works smoothly, it will facilitate the entire operation and there are specific advantages. The single calculation should also avoid scenarios of companies that have units in different states and end up having a credit balance in one and a debit balance in another, points out Magalhães.
Other companies may suffer negative impacts on their cash flow, says Mary Elbe Queiroz, especially small and medium-sized ones, which have less access to credit and in which a cash imbalance of a few months can even lead to bankruptcy. “Some companies will have to reorganize their purchase and sales deadlines, especially while split payment is not fully implemented”, he says.
Another point of attention concerns health in supply chains. “Service providers will see a brutal increase in the rate, from 9.25% in PIS/Cofins and 5.14% in some cases in ICMS, to around 28%”, says Queiroz. “They are often companies that do not have credit, and the main ‘input’ is people, human resources, so it is difficult to cut expenses.”
Alcades, from Mattos Filho, states that he has warned large companies that this has to be taken into consideration when renegotiating long-term contracts. “If there is strong pressure to maintain prices, this could even break suppliers,” he says. In a way, he says, large companies, which are more prepared for reform, will have an important educational role with their suppliers.
How is the private sector preparing?
There is a huge disparity in the preparation between companies of different sizes for renovation, point out professionals in the field and consultancies. “Large companies are already investing millions in planning and adaptation,” says Alcades. But, while companies with revenues above R$500 million per year are well advanced, medium-sized companies with revenues between R$50 million and R$500 million are still not moving, says Carlos Navarro.
"The biggest concern is in this sector, because many companies have finance and legal, but not a specific area of taxes. Most of them haven't even started thinking about reform", says Navarro. At the same time, explains the lawyer, they are large enough to have needs that will not be met by standard market solutions. They may have customized software, for example, which requires individual analysis and adaptation.
Small companies, below R$50 million in revenue – which are normally served by external accountants – should benefit from market solutions and not suffer such a huge impact if they take too long to move, says Navarro.
In 2024, the impacts of the reform were the biggest concern for company CFOs, according to a survey by consultancy Deloitte, behind only uncertainties about the country's economic scenario. The survey mapped the vision of 105 finance leaders from across the country. A previous survey by Deloitte, carried out in 2023, showed that, although 76% of the companies interviewed expected simplification with the tax reform, the transition raised concerns such as unforeseen expenses (highlighted by 60%), legal uncertainty (49%) and loss of incentives (42%).
According to a survey this month by consultancy firm Robert Half, 50% of companies interviewed believe they could be more prepared and 37% admitted they were unprepared. Only 11% are confident about the level of planning and preparation for the reform. The survey interviewed large (54%), small and medium-sized companies (44%) in industry (46%), commerce (17%) and services (37%) across the country.
The survey also shows that 53% of companies intend to hire at least three more new specialized professionals. Among large companies, 33% expect to make five new hires.
The data shows a more advanced scenario than that recorded by a Reuters daomson survey in the middle of last year, before the approval of the first regulatory legislation. Between April and May 2024, 54% of the organizations interviewed stated that they were in the initial stage of preparation for the reform and only 24% considered themselves to be advanced, with resources allocated and implementation plans in progress. 129 companies from different sectors were questioned.
Supervision and litigation
In the agenda of events on the reform – increasingly busy as the transition approaches – a point that has been frequently raised is the question of how inspection, assessment and how administrative and judicial disputes will be resolved under the new regime.
It is a topic that remains quite nebulous: there is almost no definition of the procedural part in Complementary Law 214/2025 and in the current wording of PLP 108, which raises concerns about the possibility of companies being inspected and fined by different federative entities.
Last week, Bernard Appy stated that there will be no inspection or double assessment in the new regime – even with the Brazilian option to create a double Value Added Tax (VAT) (IBS and CBS), different from the original proposal to follow the international standard model, with a single VAT. “From this option, greater complexity was created than a single VAT”, stated Appy. "But in IBS, for the same fact, in the same period, a single entity will carry out the inspection. There will not be 'n' inspections running in parallel for the same company."
The reform provides for a harmonization committee to unify the supervision and administrative jurisprudence of IBS and CBS, but there is still no definition of how it will work. There is criticism, however, regarding the body due to the absence of taxpayer representatives and even the Attorney General's Office of the National Treasury (PGFN)
In relation to the judicial judgment of the reform, a working group of the National Council of Justice (CNJ) is underway with representatives from the Union, the Judiciary, states and municipalities to debate the matter. The final text, with the proposition of a Proposed Constitutional Amendment (PEC), must be based on a suggestion from the Attorney General's Office (AGU) and the Ministry of Finance that judicial litigation be unified in a single body and that two new types of action be created under the direct jurisdiction of the Superior Court of Justice (STJ).
The plan, however, was criticized in a report by the STJ, which stated that the proposal would generate “insurmountable budgetary and administrative challenges”, would make broad defense difficult and would overload the Court. The report also predicted the possibility of cases tripling in the transition period – in contrast to the long-term expectation that the simplification brought by the reform will reduce litigation. The ministers suggested setting a limit on the scope of tax foreclosures and requiring an administrative request before access to justice.
Tax experts interviewed by JOTA assess that the forecast for an increase in STJ litigation may be “oversized” and be a “merely mathematical calculation”, but they tend to agree with the Court's assessment that the forecast for integration in tax collection “is meager and depends on bilateral agreements”.
"If we unify taxes in the VAT system, we have to have a single demand in procedural matters. Although our system is dual, IBS and CBS are based on the same legislation", says Marcelo Guaritá Borges, from the PGBR office. “In the administrative field, this unification will be easier, but this also needs to happen in legal demands.”
For Carlos Navarro, the procedural issue needs to be defined urgently, as it is natural for there to be several legal theses being discussed from the beginning. The reduction in litigation in the long term, he says, is something that will depend heavily not only on regulation, but on a change in vision from both the private sector and governments and states and municipalities. “Whether the VAT model will be better, much better or if it will just have different problems, will depend on how we, as a society, will act in the coming years”, he says.
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