Brazil’s Constitution establishes the 90-day nonagesimal anteriority principle, one of the main taxpayer protections under the country’s tax law. It prohibits federal, state and municipal authorities from collecting taxes until 90 days have elapsed since their introduction or increase. Therefore, for the Selective Tax to begin being collected on January 1, 2027, the federal government would have needed to issue a Provisional Measure establishing the new tax rates by October 2, 2026, the previous Friday. However, this did not happen.
The decision to postpone implementation until after the elections was made on Thursday (1), during a meeting between President Luiz Inácio Lula da Silva and representatives of the ministries responsible for the Chief of Staff, Planning and Finance. The government took into account concerns that the issue could be used for electoral purposes. With the new deadline set for November, tax collection will only begin in February, resulting in an estimated revenue loss of R$3.82 billion, equivalent to 9% of the R$42 billion the budget projects to collect in the following year.
Beyond the resulting loss of federal tax revenue, legal uncertainty is another significant consequence of the absence of implementing regulations for the new tax. Affected companies must make advance decisions regarding prices, contracts, budgets, inventories and investments. Changes to the tax framework during this planning process can directly affect profit margins and cash flow. In industries with more complex supply chains, even a seemingly minor variation in costs can have a significant impact when applied across a high volume of transactions.
What Is the Selective Tax?
The Selective Tax is a new levy introduced under Brazil’s Tax Reform (Constitutional Amendment No. 132/2023). It is a federal tax with an extrafiscal purpose, meaning it is designed to discourage practices considered harmful or undesirable. For this reason, it has quickly become known as the “Sin Tax.” The Tax Reform establishes that the levy applies to the production, extraction, sale or import of goods and services considered harmful to health or the environment.
Complementary Law No. 214/2025 regulates the tax reform and identifies the sectors subject to the new tax:
I. Vehicles;
II. Vessels and aircraft;
III. Tobacco products;
IV. Alcoholic beverages;
V. Sugar-sweetened beverages;
VI. Mineral goods;
VII. Lotteries, betting and fantasy sports.
In addition to targeting specific sectors and serving an extrafiscal purpose, the Selective Tax has other relevant characteristics. First, it is designed as a single-stage tax, meaning it is collected only once along the supply chain, generally at the production, extraction, import or initial sale stage by the manufacturer or importer. In addition, the tax does not allow tax credits. Unlike Brazil’s dual VAT system, comprising the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS), the Selective Tax does not generate credits for subsequent stages of the production chain. Finally, the new tax may be included in the tax base of other levies, such as the IBS and CBS, increasing the cost of the products subject to it.
As Brazil transitions to its new tax system, the Selective Tax takes over part of the revenue currently associated with the Tax on Industrialized Products (IPI). The introduction of such a tax is not new from a global tax policy perspective. Countries and jurisdictions such as the United States, Australia, Canada, Mexico and the European Union already apply selective taxes to products such as alcoholic beverages, tobacco, fuels, plastic packaging, disposable items and highly processed foods.
The Impact of Provisional Measure No. 1,394, Dated September 25, 2026
Recently, Provisional Measure No. 1,394, dated September 25, 2026, introduced a ban on fixed-odds betting and online casinos. The measure is already in effect but must be reviewed within 120 days to become permanent law. Meanwhile, experts are debating how the resulting budget shortfall caused by the ban will be offset.
The 2027 budget was presented with projected Selective Tax revenue of R$41.9 billion, but it did not specify how much would be collected from each affected sector. Without this breakdown, it becomes more difficult to assess the impact on Selective Tax revenue associated with betting activities, creating uncertainty about whether the projected revenue can be recovered.
Lower tax revenues could also affect other sectors of the economy. Lawmakers may take the reduction in betting-related revenue into account when setting Selective Tax rates for other goods and services subject to the levy. There is no requirement for other sectors to absorb the entire shortfall, nor is there a rule mandating a uniform increase. Any redistribution would depend on legislative decisions and the projections underpinning them.
There is also the possibility that this compensation could affect other taxes. Federal revenue preservation was structured through a coordinated approach that also takes the CBS into account, as stipulated in Article 130 of the Transitional Constitutional Provisions Act (ADCT). As a result, a reduction in Selective Tax revenue could lead to a higher CBS rate.
The regulatory dispute remains unresolved and appears likely to continue at least until the end of the second round of elections. In the meantime, market conditions remain uncertain, as the delay significantly complicates long-term planning by affecting pricing decisions, cost assessments and contract negotiations for 2027. Furthermore, without proper consideration of the fiscal implications of the provisional measure, it is impossible to predict how the ban will affect the CBS or other sectors subject to the Selective Tax.
