Brazil’s federal government is expected to send Congress on Tuesday a provisional measure setting rates for the Selective Tax, a levy created by the country’s tax reform to discourage consumption of products and services considered harmful to health or the environment. The tax is also known as the “sin tax.”

Finance Minister Dario Durigan said the proposal had left his ministry and was expected to be presented to President Luiz Inácio Lula da Silva before it goes to lawmakers. The government has agreed with affected economic sectors to keep their tax burden in 2027 at the level currently charged under the Industrialized Products Tax (IPI), which the new levy will replace for the covered items.

The Selective Tax was initially scheduled to begin in January 2027, but its rates had not yet been set. The report says this delay has led to an estimated loss of about 4 billion reais in revenue for the coming year. Because Brazilian rules require 90 days between the publication of a law creating or increasing a tax and its collection, the levy could start in February 2027 if the provisional measure is approved. The government has also said it intends to extend the IPI temporarily for the affected sectors during January, through a proposed constitutional amendment.

The tax applies to vehicles; boats and aircraft; tobacco products such as cigarettes; alcoholic and sugary drinks; certain mineral goods, including oil, iron ore, coal and natural gas; prognostic competitions such as lotteries and betting; and fantasy sports. Exports, electricity and telecommunications are excluded.

The levy may be charged on the production, extraction, sale or import of covered items. It is collected once along the economic chain, with no credits for earlier transactions or for subsequent stages. Rates may be based on a unit of measure, such as quantity or volume, or calculated as a percentage of a product’s or service’s value. The applicable method depends on the activity and the rules set out in legislation.

For alcoholic drinks, rates may take account of both sales volume and alcohol content. Vehicle taxation may reflect characteristics including environmental factors, allowing higher rates for products considered more harmful and more favorable treatment for those with a lower impact.

The IPI applies to a broader range of manufactured goods. Under the tax reform, its rates will fall to zero for most products, subject to legal exceptions linked to the Manaus Free Trade Zone. The Selective Tax will replace part of the IPI’s role, but only for goods and services specified by law.

The agreement announced by Durigan would keep the affected sectors’ tax burden equivalent to their current IPI burden through the end of 2027. From 2028, the government and Congress are expected to discuss a permanent model, including the possibility of higher rates intended to discourage consumption of products harmful to health or the environment.

Sources: Folha Mercado.