Brazil tax reform threatens export competitiveness and small businesses

Brazil's ongoing tax reform, established via Constitutional Amendment 132/2025, is facing criticism for potentially undermining export competitiveness and increasing complexity for businesses. While intended to simplify the tax system by replacing five categories of taxes with a dual Value Added Tax (IVA) and a selective tax (IS), the transition is creating significant administrative burdens.

Specifically, the reform threatens the 'drawback' regime, a crucial customs tool used by over 2,500 companies to exempt taxes on inputs used for exported products. New regulations, including Decree No. 12,955/2026, introduce stringent requirements for suspending IBS and CBS taxes, such as real-time computerized inventory controls. Critics argue these requirements may exclude smaller companies that lack the necessary technological infrastructure, effectively 'Recof-izing' a regime that was previously accessible to exporters of all sizes.

Furthermore, the new tax structure is expected to expand the tax base to include previously untaxed areas like real estate rentals and increase the burden on various service sectors. The continuous issuance of new norms by the Management Committee is also creating a steep learning curve for accountants and business owners.