Brazil publishes selective consumption tax rates, collection to start in February 2027

The Brazilian federal government published a provisional measure on Wednesday establishing the rates for the selective consumption tax (IS). The tax was created by the tax reform to make products considered harmful to health or the environment more expensive and will be charged in addition to the standard reform rate.

Known as the "sin tax," the new levy must respect the noventena, a minimum 90-day period between the publication of the rule and the start of collection. As a result, the IS will only begin to be collected in February 2027, rather than on January 1 as originally planned by the reform calendar.

“The new tax will be charged in addition to the standard rate of the reform.”

The published text sets rates according to each product. The highest percentage applies to cigarettes and cigarillos, at 66.7% plus a fixed amount of 3.50 reais per pack of 20 units. Until the end of 2027, for products with a fixed retail price, the calculation base will be 15% of the retail price.

Rates vary widely by product. Sugary drinks will face a rate of 2.6%, malt beer 4.2%, and wine 8%. Passenger cars will have a base rate of 6.3%, which rises or falls according to five criteria: energy source and propulsion technology, energy efficiency, power, structural performance, driver-assistance technologies, and recyclability.

To allow the measure, the government will present a constitutional amendment proposal (PEC) to extend the incidence of the Industrialized Products Tax (IPI) on goods harmful to health or the environment until the IS has full effect, in order to avoid revenue loss.

The Planalto Palace explained that the implementation will be gradual until 2028.