As part of the ongoing implementation of Brazil’s tax reform, the Federal Government issued Provisional Measure No. 1,399/2026, which sets out the rules governing the application of the Selective Tax (IS) and establishes the applicable rates.
The new tax, introduced by Constitutional Amendment No. 132/2023, will apply to motor vehicles, aircraft, watercraft, cigarettes and other smoking products, alcoholic beverages, sugar-sweetened beverages, and betting and lottery activities. The Provisional Measure also governs the taxation of extracted mineral products, which will be subject to a zero rate in 2027.
The Selective Tax serves a regulatory purpose by seeking to discourage the consumption and production of goods that are harmful to health and the environment. It has therefore become known as the “sin tax.”
Effective Date and Tax Rates
The Provisional Measure provides for the tax provisions to take effect on 2 February 2027, subject to the constitutional 90-day waiting period. Its progress through the National Congress warrants attention, particularly because proposed amendments may alter the text during the legislative process for its conversion into law.
The main rates provided for 2027 are 2.6% for sugar-sweetened beverages, 4.2% for malt beer, 8% to 24% for other alcoholic beverages, 66.7% plus BRL 3.50 per 20 cigarettes, 37.5% for other smoking products, 0.5% for betting and lottery activities, 6.8% for aircraft, and 12% for motorized watercraft. Passenger cars are subject to a base rate of 6.3%, which may be adjusted based on technical and environmental criteria. The measure also provides for zero or reduced rates for certain vehicles, aircraft, and watercraft, as well as tax relief for small producers of alcoholic beverages.
Tax Assessment and Compliance
The Provisional Measure sets out procedures for assisted tax assessment by the Brazilian Federal Revenue Service, formal acknowledgment of tax liabilities, and discharge of those liabilities through payment, split payment, or offset. It also establishes specific rules for imports. These provisions will require businesses to review and adapt their tax processes, internal controls, and tax risk management practices.
By Edson Colnaghi Neves, PhD
November 2026