Brazilian Federal Government publishes Provisional Measure establishing Selective Tax (IS) rates applicable in 2027

Known as the “Sin Tax”, the IS applies to goods and services considered harmful to health or the environment.

This week, the Brazilian Federal Government published Provisional Measure No. 1,399/2026, establishing the applicable tax rates and supplementary rules for the Selective Tax (Imposto Seletivo – IS), popularly known as the “Sin Tax”, under Brazil’s Consumption Tax Reform.

Sectors affected by the Selective Tax

The Selective Tax (IS) applies to goods and services considered harmful to health or the environment, such as vehicles, vessels and aircraft, tobacco products, alcoholic beverages, sweetened beverages, mineral goods and betting and lottery activities, according to the applicable fiscal classification (NCM) and the list set out in the Annex to Complementary Law No. 214/2025.

Tax rates established

The Provisional Measure establishes a 2.6% rate for certain sweetened beverages, 4.2% for malt beers, and rates ranging from 8% to 24% for different categories of alcoholic beverages, depending on the applicable NCM classification.

For vehicles, the rate may be either 6.3% or 3.9%, depending on the fiscal classification, with adjustments based on energy efficiency, structural performance, energy source and recyclability, including for hybrid and electric vehicles.

For cigarettes specified in the regulation, the rate will be 66.7%, plus a specific amount of BRL 3.50, in accordance with the applicable calculation methodology. Other tobacco products specified in the Provisional Measure will be subject to a 37.5% rate. For betting and lottery activities, the Provisional Measure establishes a 0.5% rate.

With regard to sustainable vehicles, vessels and aircraft equipped with technologies that do not result in direct carbon dioxide emissions, the Provisional Measure establishes a zero tax rate. Mineral goods will also be subject to a zero rate until the end of 2027, in order to maintain the international competitiveness of these products.

Effective date of the Provisional Measure

The Provisional Measure will take effect on February 2, 2027, in compliance with the 90-day waiting period (noventena), which requires a minimum period of 90 days between the publication of a regulation and the commencement of tax collection. The initial tax regime is temporary and adopts the IPI benchmark rates, with the arrangement expected to remain in effect until December 31, 2027. New rates are expected to apply as of January 2028.

The Provisional Measure must be reviewed by the National Congress for conversion into law. It is valid for 120 days and will lose its legal effect if it is not converted into law within that period.

Before collection of the IS begins, a Proposed Constitutional Amendment (PEC) is expected to be submitted to extend the application of the IPI, thereby avoiding a gap in taxation at the beginning of next year.