Brazil may postpone tax reform until 2033

The presidential election in Brazil has called into question the timetable for the introduction of the new value-added tax (VAT) system, which should be fully operational by 2033. Presidential candidate Flavio Bolsonaro has announced his intention to review the large-scale tax reform approved under Luiz Inácio Lula da Silva, and does not rule out temporarily suspending its implementation, reports the specialized publication VAT Calc.

Bolsonaro, who won the most votes in the first round of the presidential election on October 4, will face incumbent President Lula da Silva in a runoff on October 25. Tax policy is becoming one of the main economic issues in the election campaign, as the upcoming changes will affect virtually all businesses and consumers in Latin America's largest economy.

Bolsonaro's main objection is related to the expected size of the new VAT. Initial government estimates predicted a general rate of 26.5%, but subsequent estimates show that it could reach about 28%. The final size has not yet been determined, and the 2023 constitutional reform provides that the new system will retain approximately the same budget revenues as the taxes it will replace.

“I support the modernization of our tax system, which is indeed too complex“, Bolsonaro said, quoted by Reuters. However, he believes that the expected rate is too high and will lead to an excessive tax burden on businesses and the population.

As early as June 2026, the presidential candidate announced that, if elected, he intended to suspend the implementation of the reform for at least a year until new legislation was developed. On October 7, he confirmed that his team was considering options for constitutional amendments, including changes to the tax system.

What the new VAT system entails

The tax reform approved in 2023 is one of the most far-reaching changes to the Brazilian economy in recent decades. It aims to replace the complex system of federal, state and municipal consumption taxes with two main value-added taxes.

The first is the federal CBS tax, and the second – IBS, which will be administered at the state and municipal levels. A separate selective tax is also foreseen on certain goods and services considered harmful to health or the environment.

The transition to the new system began in 2026 with a test period. The actual implementation of the federal VAT is due to begin in 2027, and between 2029 and 2032, the current state and municipal taxes will be gradually replaced. The full implementation of the reform is scheduled for 2033.

According to an estimate published in July 2026 by the Brazilian IBS governing body, the future combined rate could reach 27.91%, with 9.21% attributable to the federal CBS tax and 18.7% - to the state and municipal IBS. However, this remains an estimated rate, not a definitively approved rate.

Dispute over the new tax collection mechanism

In addition to the VAT rate, Bolsonaro's team is also challenging one of the main mechanisms of the reform - the so-called split payment.

In this system, the tax portion of the payment for a given transaction is automatically separated when the transaction is made, instead of the entire amount first going to the supplier. The government believes that the mechanism will limit tax fraud and reduce losses from uncollected revenue, which could potentially allow for a lower overall tax rate.

However, Bolsonaro's economic advisor Daniela Marquez said that a possible new government would seek to eliminate this mechanism. According to her, it could harm the working capital of companies, limiting the funds they have available for their current activities.

The voluntary implementation of the split payment in business-to-business transactions is planned to begin in 2027, before the mechanism becomes mandatory at a later stage.

Businesses face new uncertainty

The possible postponement or modification of the reform creates additional uncertainty for Brazilian companies that are already investing in adapting their accounting systems, electronic invoicing, tax calculations and reporting.

The changes in the schedule could lead to additional costs, especially for companies that operate in several Brazilian states or carry out a large number of transactions.

Bolsonaro's tax proposals are not limited to VAT. His economic team envisages revising the dividend tax introduced in January, reducing labor taxes and eliminating the 12 percent tax on crude oil exports introduced by the Lula government in 2026.

For his part, the incumbent president defends the reform as a tool to simplify the tax system, eliminate existing distortions and distribute the tax burden more fairly.

For now, the legally established timetable for introducing the new VAT remains unchanged. Any postponement or modification of the tax structure will require the appropriate legislative and, in certain cases, constitutional decisions.

The outcome of the presidential election on October 25 will determine whether Brazil will continue on the original schedule or begin a new process of revising the tax reform.