Chapter MG event brought together mining and agribusiness companies to assess the business impacts of the new system under discussion in Congress

By Silvia Pimentel

Tax attorneys representing companies with a significant contribution to the Gross Domestic Product (GDP) are examining the regulations of the tax reform on consumption to assess the impacts on businesses and forecast scenarios for the full implementation of the new system by 2033. On September 10, representatives from the mining, energy, and agribusiness sectors gathered with specialists in Belo Horizonte (MG) to discuss the topic at an event organized by the Minas Gerais Chapter of the Chamber of Commerce Brazil-Canada (CCBC), in partnership with the law firm William Freire Advogados e Associados.

Although many points still need to be defined, numerous questions are already arising during this preparation phase. The transition to the new tax model is set to begin in 2026, when companies will start paying part of the new taxes at reduced initial rates, while the current taxes will be gradually phased out.

The tax reform aims to simplify tax payments, maintain the current revenue level, and allow for the full utilization of credits accumulated in previous stages of the production chain. To achieve this, a Dual VAT (Value-Added Tax) of international standard will be created, consisting of the IBS (Goods and Services Tax), shared between states and municipalities, and the CBS (Goods and Services Contribution), under the jurisdiction of the federal government.

According to Tiago de Mattos, coordinator of the Minas Gerais Chapter of the CCBC and partner at William Freire law firm, there are still many uncertainties regarding the progress of the reform, as it involves significant changes in various legislations before it can be fully implemented. Many industries are also concerned about a potential increase in the tax burden in the future, although the government has repeatedly stated that taxes will not increase.

“There is a strong desire to understand the future scenario to make decisions, especially in the mining and electricity sectors, where the return on investments occurs in the long term. The transition phase is lengthy, meaning that many investments made today will bring returns once the reform is completed,” says Mattos.

The Dual VAT
The IBS and CBS, which will form Brazil’s Dual VAT, will replace the current ISS and ICMS, PIS, Cofins, and IPI. Additionally, a Selective Tax (IS) will be created, which will have higher rates on goods and services considered harmful to health and the environment.

Among the main changes of the new taxation system that will affect companies in general are (1) the elimination of tax incentives granted by states to attract investments, (2) taxation at the destination, i.e., where the consumers of goods and services are located, and (3) the adoption of the “net” tax calculation. In the current system, the tax calculation is “gross,” meaning the tax is included in its own base, making the final rate paid by consumers higher than the nominal rate.

The first regulatory text of the reform, PLP 68, currently under discussion in the Senate, provides for the creation of the VAT and the application of differentiated regimes for certain sectors or economic activities. These regimes guarantee discounts of 30%, 60%, and even 100% of the VAT rate, which has been set at 26.5%.

Sectoral Impacts
The event in the capital of Minas Gerais brought together about 80 participants, including managers, financial and administrative directors, investors, and businesspeople, to discuss these key points of the tax reform and its specific impacts on the involved sectors.

During the meeting, lawyers from the William Freire firm detailed the criteria for the application of the IBS and CBS, the tax calculation base, credits, the non-cumulativity system, and the rules for the transition phase. One point of concern highlighted was the incidence of the new Selective Tax (IS) on iron ore and mineral coal, which could compromise Brazil’s competitiveness in the international mining market.

In the agribusiness sector, the main achievements obtained during the text’s voting in the House were highlighted, with an emphasis on the need to preserve these positive advances in the Federal Senate. Key points discussed included the inclusion of horticultural and food products in the list of products with reduced rates, as well as the exemption for biofuels.

In the energy sector, experts discussed legal issues related to the incidence of taxes on self-produced energy operations, as well as the inclusion of sectorial charges in the tax base.