Selective Tax.
The Brazilian sin tax.

What the Selective Tax taxes

Complementary Law 214/2025 and Constitutional Amendment 132/2023 list the goods subject to the IS:

• Alcoholic beverages (beer, wine, spirits)
• Tobacco products (cigarettes, cigars, hookah tobacco)
• Sugary drinks (under regulatory discussion)
• Luxury goods (jets, yachts, cars above a certain value — defined by decree)
• Polluting vehicles (carbon-emission criterion)
• Extraction of mineral and energy natural resources (mining, oil, gas)

The list is exhaustive — only what is expressly provided may be taxed. Companies in sectors not listed are not subject to the IS.

Rates that vary by good

The IS rates are set by federal decree — they are not fixed in statute. This allows the Executive to adjust the rate for each good according to public policy (health, environment, regulatory revenue). Initial estimates:

• Cigarettes and tobacco: high rate (maintaining the current heavy IPI burden)
• Alcoholic beverages: a rate progressive by alcohol content
• Sugary drinks: a rate proportional to sugar content (UK model)
• Vehicles: a rate progressive by value plus an emission criterion
• Mining: a rate on the market value of production

The IS is cumulative with IBS+CBS — taxed companies pay an additional IS on top of the regular rates. Typical total burden: 27.5-28% (IBS+CBS) + variable% (IS).

Tax base

The tax base is the sale price of the taxed operation, with specific rules:

• In intra-group operations (between related parties), the base may be arbitrated by the tax authority via a reference value
• In mineral/energy extraction operations, the base is the market value of the good at source
• No reduction is allowed for conditional commercial discounts

The IS is cumulative (generates no credit)

Unlike IBS and CBS, the Selective Tax is cumulative — it generates no credit for the next stage. Its purpose is not merely to raise revenue but is regulatory: to make goods considered harmful more expensive in order to discourage consumption.

For the final consumer, the IS is embedded in the price together with IBS and CBS. For intermediary companies in the chain (distributors, wholesalers), the IS is an additional cost that reduces margin or is passed on to the next link.

Strategy for impacted sectors

Companies in sectors subject to the IS need to structure operational readiness and a commercial strategy:

1. Modeling the post-IS final price — pricing the product considering IBS+CBS+IS to preserve margin
2. Demand-elasticity analysis — how much of the IS can be passed on to the consumer without a significant loss of volume
3. Portfolio reformulation — heavily taxed products vs lower-taxed alternatives (e.g., low-alcohol beverages, sugar-free soft drinks)
4. Continuous regulatory monitoring — rates vary by decree and may change annually