IBS (Tax on Goods and Services) is the new subnational tax created by the Tax Reform to replace the state ICMS and the municipal ISS. It is a consumption tax, follows the OECD dual-VAT standard and its central feature is full non-cumulativity — every credit generated is fully used by the taxpayer at the next stage. Reference rate projected at ~18.7%, with phase-in beginning January 1, 2029 and full effect in 2033.
What IBS is
IBS is a subnational tax — shared between states (which lose the ICMS) and municipalities (which lose the ISS). It is administered by the IBS/CBS Steering Committee, a body created by Complementary Law 227/2026.
Unlike the current ICMS (each state with its own legislation, dozens of special regimes, fiscal war), IBS will have uniform federal legislation. The federative entities will lose the autonomy to create their own benefits — which ends the fiscal war between states that has lasted since the 1990s.
| Feature | ICMS + ISS (current model) | IBS (new model) |
|---|---|---|
| Taxes | ICMS (state) + ISS (municipal), separate | Single subnational tax replacing both |
| Legislation | 27 state legislations + thousands of municipal ones | Uniform federal legislation |
| Fiscal war | Own benefits per entity, fiscal war since the 1990s | Ended — entities lose the autonomy to create their own benefits |
| Non-cumulativity | Residual cumulativity (freight not creditable, restrictions, special regimes) | Full — every tax paid generates a full credit for the next stage |
| DIFAL and Tax Substitution | Interstate DIFAL and ST present | Extinguished — uniform national rate, no advance collection |
| Reference rate | — | ~18.7% (state ~17.7% + municipal ~1.0%) |
Reference rate ~18.7%
The projected reference rate is approximately 18.7% — the sum of the state portion (~17.7%) and the municipal portion (~1.0%). Combined with the federal CBS (~8.8%), the total burden reaches approximately 27.5% to 28% on consumption.
There are differentiated regimes:
- Zero rate: basic food basket, medicines for cancer/AIDS/rare diseases, medical devices for persons with disabilities
- 60% reduction (effective rate ~11%): health, education, public transport, agricultural products, fresh foods
- CadÚnico cashback: water, sewage, gas, energy, telecom (a refund instead of an exemption)
Full non-cumulativity — unprecedented in Brazil
The big difference between IBS and the current ICMS is full non-cumulativity. Under the current regime, several situations create residual cumulativity (freight between establishments not creditable, restrictions by end-use, special regimes). With IBS, every tax paid at any stage of the chain generates a full credit for the next stage.
This mechanism eliminates the residual “tax on tax” that today makes the chain 5-12% more expensive without anyone capturing the value. Industries with long chains (manufacturing, agribusiness, construction) tend to benefit substantially.
IBS timeline
- Jan 2026: token IBS of 0.1% (testing phase), ICMS/ISS at full rates
- Jan 2029: IBS phase-in begins — it rises progressively, ICMS/ISS start to be deactivated
- 2033: ICMS and ISS extinguished, only IBS in force
The 2029-2033 period is one of coexistence — a company may issue an NF-e with ICMS, ISS and IBS simultaneously depending on the operation. Operational adaptation is complex and requires advance planning.
End of DIFAL and Tax Substitution
Two structures that dominate the complexity of the current ICMS cease to exist:
- DIFAL (interstate rate differential): there is no longer an “internal rate” vs “interstate rate” — IBS is uniform nationwide. Interstate operations create no additional complexity.
- Tax Substitution (ST): there is no longer any advance collection of the tax. Each link pays on what it sells, with a full credit for what it paid. Sectors today under heavy ST (fuels, beverages, pharmaceuticals) will have a much simpler cash flow.
For e-commerce and multi-state distributors, this is the biggest operational gain of the Reform — the end of 27 separate state registrations and per-state special regimes.
What IBS changes by company profile
The effect of IBS is not uniform — it depends on the position in the chain and the business model. Full non-cumulativity benefits those with many creditable inputs; those with few may see their burden rise.
| Company profile | Main effect of IBS |
|---|---|
| Long-chain industry (manufacturing, agribusiness, construction) | Gains from full non-cumulativity — recovers the 5–12% residue that today is trapped in the chain. |
| Multi-state retail and e-commerce | Biggest operational gain: end of DIFAL, of ST and of the 27 state registrations; uniform national rate. |
| Services (today under ISS) | Moves from the municipal ISS without credit to IBS with a full credit on inputs — but the reference rate (~18.7%) usually exceeds the current ISS (2–5%). The net effect depends on creditable inputs. |
| Essential sectors (health, education, agriculture, basic food basket) | Reduced rate (60% or zero) — mind the qualification requirements. |
Service companies with few creditable inputs (consultancies, regulated professionals) are the ones that most need to model the impact — for many the burden rises, and the choice of regime and structure makes a difference. Estimate the rate for your sector in the calculator.
References and official sources
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Book a diagnosticFrequently asked questions
Does IBS replace ICMS and ISS?
What is the IBS rate?
When does IBS take effect?
Does IBS end DIFAL and Tax Substitution?
Does IBS increase my company’s tax burden?
How does IBS affect service companies that pay ISS today?
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