Brazil’s federal government has set the 2027 rates for the Selective Tax, created by the tax reform to discourage the consumption of products considered harmful to health or the environment. The rates were established in a provisional measure issued Wednesday, November 4. The government also sent Congress a constitutional amendment proposal to keep the Industrialized Products Tax (IPI) in place during the transition to the new levy.
The Selective Tax, often called the “sin tax,” is due to replace the IPI and cover vehicles, aircraft, boats, cigarettes, alcoholic and sugary drinks, extracted minerals, lotteries and betting, as well as fantasy sports. Collection is scheduled to begin on February 2, 2027, following the 90-day waiting period required before a new or increased tax can be collected.
Because the rates were not set 90 days before the initially planned January 2027 start, the government estimated that the end of the IPI without an equivalent replacement could reduce revenue by about R$4 billion next year. Its proposal to extend the IPI would avoid a period in which the affected products are no longer taxed while the Selective Tax is not yet being collected.
For cigarettes, the measure keeps a 66.7% rate applied to a tax base equal to 15% of the retail price, alongside a specific charge of R$3.50 per pack. The minimum price remains R$7.50. Alcoholic drinks retain six product-based rates, ranging from 4.2% to 24% under the Selective Tax, compared with IPI rates of 3.9% to 19.5%. Sugary drinks keep the IPI rate of 2.6%; covered products include soft drinks, energy and sports drinks, and ready-to-drink sweetened or flavored teas and mate.
Extracted minerals will have a zero rate through December 31, 2027, with permanent rules to be considered later. Lottery and betting products, including games such as Mega-Sena, Lotofácil and Loteca, will face a 0.5% rate.
Vehicle rates will take account of sustainability and energy efficiency. The measure provides a zero rate for certain categories, including vehicles bought by people with disabilities or autism spectrum disorder, and by professional drivers using vehicles for hire, such as taxi drivers, subject to legal conditions. The provision also covers vehicles with a sustainability classification registered by the Ministry of Development, Industry, Trade and Services.
The Selective Tax will not apply to trucks with a gross vehicle weight of at least 3,500 kilograms, except pickup trucks, or to certain vehicles, aircraft and boats used in operations by the Armed Forces and public security agencies.
The measure also sets out a mechanism to preserve the overall revenue level established by the tax reform. If estimated Selective Tax revenue rises, the reference rate and projected revenue for the Contribution on Goods and Services (CBS) will be reduced by an equivalent amount; the reverse adjustment is also предусмотрен. The government says the mechanism is intended to maintain the reform’s overall revenue, rather than provide a tax-revenue waiver.
The rates set by the provisional measure apply only to 2027. The executive branch must send Congress a bill with permanent rates by May 31, 2027, for implementation from January 1, 2028. Congress will then consider the lasting design of the tax, whose stated purpose is not only to raise revenue but also to discourage the consumption and production of goods and services considered harmful to health or the environment.
Sources: Folha Mercado.