Brazil’s Consumption Tax Reform Becomes Political Flashpoint as Business Leaders Urge Presidential Candidates to Protect Law

A powerful coalition of nearly 100 Brazilian specialists, academics, business leaders, and former government officials has formally warned presidential candidates against proposing a halt to the country’s landmark consumption tax reform. The group sent a manifesto to all major campaigns expressing "great concern" that any plan to suspend or revoke the reform, known as the IVA Dual, would create significant instability and compromise the expected long-term benefits for the Brazil economy.

The appeal lands at a critical moment in the multi-year transition process, placing the stability of the long-awaited tax overhaul at the center of the current election cycle. The 2023 reform, formalized by Constitutional Amendment No. 132, is Brazil's most ambitious attempt in over 50 years to simplify one of the world's most complex and compliance-heavy tax systems.

The IVA Dual is designed to eliminate a chaotic regime of federal, state, and municipal levies by replacing taxes like the federal PIS and Cofins, the state ICMS, and the municipal ISS with a dual Value-Added Tax (VAT) system: the federal Contribuição sobre Bens e Serviços (CBS) and the subnational Imposto sobre Bens e Serviços (IBS). This shift is intended to end the damaging "tax-on-tax" or "cascading" effect and institute a broad credit system, which is broadly expected to cut compliance costs and boost overall competitiveness for Brazilian business.

The political risk is magnified because the reform is already actively being implemented. The year 2026 is acting as a test phase with symbolic rates for the new CBS and IBS taxes, but the law requires the federal CBS to become fully operational in 2027, replacing the existing PIS and Cofins. Suspending the process now would force the economy back to the old regime just as companies have invested heavily in reprogramming systems, training staff, and reconfiguring supply chains for the new structure.

The signatories argue that any policy proposal to disrupt the law now would compromise the principle of legal certainty and replace the hope of tax simplification with an even greater level of bureaucratic uncertainty. With the election approaching, candidates face pressure to either commit to sustaining the politically difficult, long-term transition or tap into political opposition focused on concerns over initial tax rates and state revenue changes.

What it touches

The stability of the consumption tax reform is a material factor for Brazilian sovereign credit risk. The success of the IVA Dual is viewed by credit rating agencies and international financial institutions as key to improving Brazil's long-term fiscal efficiency and growth potential. Any move by an incoming administration to halt or roll back the reform would introduce a significant headwind to the long-term outlook for the country's economic and fiscal stability.