The Consumption Tax Reform represents one of the biggest structural transformations ever undertaken in the Brazilian business environment. More than just a change in tax rates or the replacement of some taxes, it is a profound alteration in the logic of the tax system, in the way companies set prices, manage cash flow, and structure their operations.
The new tax structure has been widely debated by experts over the past few years. And in one of these debates, at the event "Our Tax Reform," in FGV (Fundação Getulio Vargas), in São Paulo, Luiz Roberto Peroba, partner at Pinheiro Neto Advogados, and Eurico Diniz de Santi, a professor at FGV who actively participated in drafting the Tax Reform text, gave a general overview of what will change in the coming years.
PagCorp was there, closely monitoring everything to show how the new system will work in practice and what the main impacts are that companies should start considering right away.
The new system and the adoption of the VAT model.
The main change brought about by the Reform is the adoption of a consumption tax model inspired by the Value Added Tax (VAT), used in much of the world. Today, according to Peroba, around 170 jurisdictions already use systems of this type.
"When I talk to executives from global companies that invest in Brazil, the reaction is usually: finally, the country is adopting something that is understandable," says the lawyer.
Brazil has always been considered a unique case on the international stage. The system previously used combined federal, state, and municipal taxes with different bases and complex rules, making it extremely difficult for foreign companies to understand the country's tax structure. This complexity also generated a huge volume of tax litigation. According to Peroba, Brazilian tax litigation represents about 75% of GDP, an extremely high number when compared to other countries.
With the reform, the goal is to replace taxes such as PIS, COFINS, ICMS, and ISS with a more standardized model aligned with international practices. The logic will be based on three pillars: broad tax base, full non-cumulativeness, and taxation at the destination.
Tax transparency: consumers are starting to see taxes more clearly.
One of the most important conceptual aspects of the new system is the increased transparency regarding the tax burden. Currently, a large portion of taxes is embedded in the final price of products and services, making it difficult for consumers to understand how much they are paying in taxes.
With the new model, the trend is for the tax amount to be clearly highlighted on invoices. In practice, this means that transactions will be made on a net basis, separating price and tax. "Today you receive an invoice and have no idea what is tax and what is price. The new system separates these two things," explains Peroba.
This change could significantly alter consumer behavior and increase pressure on governments regarding the level of the tax burden. By clearly visualizing the tax amount in each purchase, society tends to participate more actively in the debate about taxation.
The VAT rate in Brazil: why the numbers generate debate.
One of the issues that generated the most public discussion was the possible reference tax rate close to 28%. In many cases, this rate was interpreted as a further increase in the tax burden. However, experts point out that the reality is different.
According to Peroba, this rate basically represents the level of revenue that the system already has today, only in a more transparent way. "Everyone says it's the highest VAT in the world. But the current system already collects something close to that. The difference is that now it will be possible to see it," he reveals.
Furthermore, the reference value does not mean that all activities will pay exactly that rate. The system provides for reductions, exemptions, and specific regimes for certain sectors, which tends to reduce the average effective rate.
The end of tax breaks and the change in competitiveness between companies.
One of the most significant impacts of the reform will be the reduction of tax benefits that currently heavily influence the cost structure of Brazilian companies.
For decades, various states and municipalities have used tax incentives to attract businesses and investments. In many cases, these benefits have become a fundamental part of the profitability of certain businesses.
Peroba points out that this change could reveal an unexpected scenario for many companies. "When we analyze the balance sheets of various companies, we realize that a large part of the profit comes from tax benefits and not from operational activity," he says.
With the new system, the trend is for the competitive environment to become more neutral, reducing distortions created by regional tax incentives. This may require profound revisions to the business models of some companies.
Tax Reform Timeline: When do the changes begin?
Although the full transition period extends into the beginning of the next decade, the changes begin long before then.
One of the first milestones will be the publication of regulations detailing the practical implementation of the new system. After this publication, companies will have a few months to begin adapting their processes and systems.
According to Peroba, the initial deadline may be quite tight. "After regulation, companies will have about four months to start issuing invoices under the new model in a test environment," he points out.
Another important point involves the immediate elimination of some taxes. PIS and COFINS, for example, should be replaced by the new Contribution on Goods and Services (CBS) in the first years of implementation.
State and municipal taxes (ICMS and ISS) will undergo a longer transition process until the consolidation of the new Tax on Goods and Services (IBS).
The impact of the Tax Reform on companies' systems.
One of the biggest practical challenges of the reform will be technological. Companies will need to adapt their management, billing, and tax document issuance systems to the new model.
Brazil has a fairly advanced digital tax infrastructure, especially with the Electronic Invoice. However, the reform requires additional standardization and significant changes to business management systems. "What companies are doing now is working with software vendors to adapt systems. No one can stop issuing invoices," says Peroba.
This adaptation involves everything from adjustments to ERP systems to changes in how prices and taxes are calculated in commercial transactions.
Split Payment: The Impact on Companies' Cash Flow
Another point that has generated much debate in the market is the so-called Split Payment, a mechanism that can significantly alter the cash flow of companies.
In the current model, the tax collected on sales usually remains temporarily in the company's cash flow until the moment of payment to the government. In the new system, the idea is that the tax amount will be automatically separated at the time of the transaction.
“Currently, companies operate for some time with money that is actually from taxes. The new system tends to remove this amount from cash flow immediately,” explains Peroba. This may reduce the financial flexibility of some companies and require adjustments in working capital management.
Destination-based taxation and the end of the tax war.
One of the most relevant structural transformations of the Reform is the shift from origin-based to destination-based taxation. In practice, this means that the tax will be collected where consumption occurs, and no longer where the product or service was produced.
This change is expected to reduce the so-called tax war between states and municipalities, which for decades have offered tax incentives to attract businesses. According to Peroba, this change should also redistribute revenue among municipalities. "Today, many digital services concentrate revenue collection in a few municipalities. With destination-based taxation, this revenue will be distributed much more broadly," he reveals.
Specific regimes and sectors with differentiated treatment
Although the goal of the Reform is to create a more uniform system, some sectors will have different regimes. These include the financial sector, payment institutions, and certain real estate activities.
In the case of financial institutions, for example, part of the revenue may follow a hybrid model, combining taxation on services and specific treatment for financial income.
This type of special regime is not uncommon in VAT systems around the world, as certain sectors have particularities that make the application of the standard model difficult.
The future of Simples Nacional in the new tax system.
Another relevant topic in the discussions about the reform is the future of the Simples Nacional (Simplified National Tax System). Although the system has not been eliminated, experts point out that the new system may reduce its attractiveness over time.
According to Peroba, companies that remain in the Simples Nacional tax regime may generate fewer tax credits for their clients, which can influence business decisions.
Professor Eurico Diniz de Santi notes that there is an alternative within the new model. "The company can maintain the benefits of the Simples Nacional tax regime in areas such as income tax and payroll contributions, but choose to participate in the VAT credit system," reveals Eurico.
This possibility may encourage many companies to gradually migrate to the new model.
Preparing for Tax Reform
Given all these changes, experts recommend that companies begin a structured preparation process now.
Among the main areas of work are:
- review of pricing and margin models
- cash flow impact analysis
- adaptation of systems and ERPs
- reassessment of supply chains
- study of logistical and operational impacts
The Tax Reform represents a structural change in the way businesses operate in Brazil. Companies that begin the adaptation process earlier will be better positioned to navigate this new environment.
Solutions that increase financial control, expense visibility, and operational efficiency, such as... PagCorp They become even more relevant to the market.
For organizations seeking to prepare for this new scenario, closely monitoring regulatory changes and strengthening their financial management will be fundamental to navigating this transition as safely as possible.
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