Brazil’s Senate could set the rate for the Contribution on Goods and Services (CBS) at between 9.5% and 10% next year, rather than the 11.3% estimated by the Federal Court of Accounts (TCU), by revisiting three assumptions behind the calculation.
The TCU’s estimate may be technically sound, but the final rate is a political decision for the Senate, based on the court’s calculations. One issue senators could examine is how much the new tax system is expected to reduce revenue losses from tax evasion and tax planning.
The TCU relied on a Federal Revenue Service study that projected those losses would fall from 22.6%, the average for 2016–2019, to 15.9%. The Secretariat for Tax Reform used a more optimistic estimate in 2023, describing a 10% revenue loss as a feasible scenario and 15% as a conservative one. According to the secretariat’s calculations, the difference between those estimates would lower the CBS rate by 0.5 percentage points.
A second issue is how to maintain the tax burden. Revenue from the CBS, the Selective Tax and the new IPI is meant to match revenue from PIS, Cofins, the IOF on insurance and the current IPI. The debate concerns which years should be used to calculate the revenue target, a measure known as “average 2.”
The law specifies 2012–2021, a period that locks in revenue at its peak before a court ruling found unconstitutional the way the taxes had been charged, including the use of ICMS in the PIS and Cofins tax base. Using the ten years through 2025, or the government’s original proposal of 2024–2025, would reduce the rate from 11.3% to about 10%, according to the report. That could be justified as a way to avoid increasing the tax burden, but changing the reference period would conflict with the law passed by Congress.
The third question is the period used to estimate how much revenue each percentage point of the rate would generate as a share of GDP, known as “average 1.” The law calls for data from 2024 and 2025. The TCU instead used 2023–2024 because consolidated figures for last year were not available. More recent data could produce a lower rate, although the information currently available is not enough to establish the effect. The Senate could request an updated calculation.
Taken together, the three changes could bring the rate close to 9.5% without reducing revenue compared with recent years. In its calculation documents, the TCU also provided an analytical estimate using the same period, 2023–2024, for both averages: a tax burden of 4.25% of GDP and a CBS rate of 9.2%. The report cautions that 2023 was the worst year for PIS and Cofins revenue in recent history, pulling the average down.
For a larger rate reduction in 2028, the government has argued that Congress should focus on reviewing tax benefits provided for in the reform and building a Selective Tax that raises more revenue than projected for 2027. That could bring the CBS rate below 7%.
Sources: Folha Mercado.