Already regulated, the Tax Reform changes the non-cumulativity system of consumption taxes. With the new rule, it is expected to eliminate the cascading effect of taxes and ensure the full adoption of the principle of tax neutrality.
By Rafael Maniero
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Legale Overseas, no. 945.
Non-cumulativity is already applied to taxes such as the Tax on Circulation of Merchandises and Services (ICMS), the Tax on Industrialized Products (IPI), the Social Integration Program (PIS), and the Contribution for Social Security Financing (COFINS). However, the tax reform introduced important changes to this framework.
With the new Dual VAT model — composed of the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS) — taxpayers will be able to calculate credits on practically all their acquisitions, except those intended for personal use or consumption. This represents a significant advance in eliminating cascading taxation.
This mechanism ensures that the tax charged at one stage of the production chain is deducted at the next stage, up to the final consumer. Under the current system, however, the prohibition on full credit appropriation creates tax residues, increasing costs and system complexity.
With the reform, broad non-cumulativity will be applied to both CBS and IBS, consolidating the principle of neutrality, which prevents the tax system from causing distortions in the economic decisions of agents. Thus, it seeks to minimize the tax’s interference in investment choices and preserve the balance of the competitive environment.
The current scenario shows the opposite, as evidenced by the “tax war” between states offering ICMS tax benefits to attract investments, making the tax a decisive factor in company location, to the detriment of extrafiscal criteria.
The adoption of the neutrality principle, combined with taxation at the destination, tends to reduce the influence of fiscal factors in geolocation decisions, emphasizing logistical, competitive, and environmental aspects.
The uniformization of crediting throughout the country is essential to ensure neutrality, prohibiting states from granting differentiated credits that reduce the tax due. This simplifies the system and eliminates tax residues in the circulation chain.
According to Article 47 of Complementary Law No. 214/2025, all acquisitions will confer credit, except those considered for personal use or consumption — a concept detailed in Article 57 of the same law — ensuring greater legal certainty and effectiveness of the neutrality principle.
Thus, the elimination of tax-on-tax incidence is expected, simplifying tax administration and ending cascading taxation.
Impacts for Business
Broad non-cumulativity benefits companies and final consumers by eliminating cascading taxes and enabling cost reductions, depending on the CBS and IBS rates.
- Industry and Commerce: Will be able to appropriate credits on raw materials, goods for resale, and other expenses, offsetting them against outgoing taxes and reducing the tax burden;
- Service Providers: Companies with high payroll costs may face an increased tax burden since, despite deducting credits on expenses (except payroll), they may be subject to rates possibly higher than the current Service Tax (ISS) rates (between 2% and 5%);
- Companies with Special Regimes: Those enjoying exemptions and tax benefits should assess the impacts, as such regimes will be eliminated, except for those related to the Manaus Free Trade Zone, requiring strategic review.
Credit calculation will be based on taxes highlighted in electronic purchase invoices, and offsetting will occur through a system to be implemented by tax authorities, with tests already underway.
Although CBS and IBS rates have not yet been defined, the adoption of full non-cumulativity and the neutrality principle represents progress in Brazilian tax justice. It is now up to taxpayers to analyze the specific impacts on their businesses.
The Tax Law team at Vaz de Almeida Advogados is closely monitoring the Tax Reform updates and is prepared to advise companies on the new legal requirements.
Translation Disclaimer
This document was originally drafted in Portuguese and subsequently translated into English using artificial intelligence (AI).
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