Selective Tax.
The Reform’s tax on harmful goods.

What the Selective Tax is (the “sin tax”)

The Selective Tax earned the press nickname “sin tax” — the phrase is not in the law, but it captures the idea. It is the Reform’s tax aimed at what the State wants to discourage: LC 214/2025, art. 409 creates it to levy on goods and services harmful to health or the environment (in line with art. 153, VIII, of the Constitution, added by EC 132/2023). Its function is selective — to make harmful consumption more expensive — not to raise revenue for its own sake.

Hence the most common confusion: that the IS would be the “new IPI”. Not quite. From 2027, the IPI has its rates reduced to zero — except for incentivized manufacturing in the Manaus Free Trade Zone — but it is not abolished (ADCT, art. 126, III; LC 214, art. 454). The Selective Tax is a new and narrower tax, and the two do not apply cumulatively (ADCT, art. 126, III, “b”). The word “replacement” appears in the law only in a narrow sense — offsetting the loss of IPI revenue in transfers to States and Municipalities (art. 477) — not the swap of one tax for the other.

Next: what the IS taxes, when it begins, how rates will be set, what it does not reach, and the debates around the tax.

Which products pay the Selective Tax

Art. 409, §1, of LC 214/2025 lists the seven categories of goods and services reached by the Selective Tax — identified by NCM/SH code (plus coal) and, for services, by Annex XVII. The table below summarizes each category and the base set in the law:

The list is exhaustive — only what is expressly provided in art. 409 may be taxed. Companies in sectors outside the list are not subject to the IS.

A note on oil, gas and fuels: the category in the law is “mineral goods”, and the only gas case appearing in Book II is natural gas, with the rate reduced to zero when used as an industrial input or transport fuel (art. 423). The detail by NCM/SH code will come in the ordinary law and the regulation.

When the Selective Tax starts being charged

The Selective Tax has been instituted since LC 214/2025 was published, but collection begins from 2027. It is the same milestone at which the CBS takes full effect, PIS and COFINS are abolished, and the IPI is reduced to zero — except in the Manaus Free Trade Zone. The IS takes on, in part, the regulatory function that the IPI carries today over the goods in the seven categories.

Two points matter for planning. First, the rates depend on an ordinary law still to be enacted for each category — without it, there is nothing to charge. Second, the IS is subject to the ninety-day anteriority rule in EC 132/2023: the law that sets or raises a rate takes effect only after at least ninety days from publication. For alcoholic beverages, tobacco and sugary drinks, LC 214 itself provides for phased rate-setting from 2029 to 2033 (art. 422, §5).

How the Selective Tax rates are set

This is the point that causes the most noise. The Selective Tax rates are not set by decree: LC 214/2025 requires, for each category, that they be set by ordinary law (arts. 419, 421, 422 and 434, §1). The complementary law defines the structure — who pays, on what, with which graduation criteria — but the rate figure will come in a law of its own, subject to the ninety-day rule.

LC 214 fixes only the criteria and the limits of each category:

• Vehicles: rate graduated by power, energy efficiency, CO₂ emissions, recyclability and vehicle category (art. 419). Zero rate for differentiated-regime cases, with a price cap of R$ 200,000 (art. 420).
• Vessels and aircraft: graduated by environmental sustainability, with a possible zero rate for zero-emission (art. 421).
• Tobacco products: an ad valorem rate (percentage on value) plus a specific rate (amount per unit of measure) — art. 422, §1, I.
• Alcoholic beverages: a specific rate on alcohol content × volume, which may be progressive by content and differentiated by category and small producer (art. 422, §§1, 4, 7 and 8).
• Mineral goods: the law already locks the 0.25% cap on extraction (art. 422, §2).

So any burden percentage circulating in the press for the other products is an estimate — it is not written in the law and will depend on each category’s ordinary law. The only figure locked in statute today is the 0.25% cap on mineral goods.

Calculation: ad valorem and specific

LC 214 works with two rate types, which can combine. The ad valorem rate is a percentage on the value of the operation. The specific rate is an amount per unit of measure (per litre, per pack), with the tax base expressed in a unit of measure (art. 414, §1). Cigarettes and alcoholic beverages, for example, tend to combine the two.

How the Selective Tax works: single-stage and taxable event

The IS has its own mechanics, different from IBS and CBS. Three traits define how it operates:

• Single-stage (art. 410). The IS is charged once on the good or service. Using credit from earlier operations or generating credit for later ones is barred — unlike the IBS and the CBS, which are fully non-cumulative.
• Taxable event (art. 412). It occurs at the first supply of the good, on import, on auction sale, on the extraction of a mineral good, or on consumption of the good by the manufacturer itself. As a rule, the tax arises at the first exit of the chain.
• Administration (art. 411). The IS is administered and audited by the Federal Revenue Service, not by the IBS Steering Committee. The assessment period is monthly (art. 430).

There are also situations where the IS does not apply or has a zero rate — exports, electricity, telecommunications and items with a reduced rate — but on distinct legal grounds. The section what the Selective Tax does not reach separates these regimes.

What the Selective Tax does not reach

As important as knowing what the IS taxes is knowing what falls outside — and here lies a frequent error, because three different concepts are often confused. LC 214 and the Constitution treat them separately:

• Non-incidence (art. 413). The IS does not apply to electricity and telecommunications, nor to goods and services whose rates were reduced under EC 132/2023. This is what the law expressly removes from the tax’s scope.
• Immunity of exports. Exports do not pay the IS — but the ground is not art. 413; it is the Constitution: art. 153, § 6, I, as worded by EC 132/2023, grants immunity to exports. This is a point that less careful pages get wrong.
• Zero rate (art. 423). Natural gas used as an input in an industrial process or as a transport fuel has its rate set at zero. Here there is no “non-incidence”: the good is within the tax’s scope, but with a zero rate — distinct concepts, with different legal effects.

The distinction is not pedantry. Non-incidence, immunity and zero rate produce different consequences for ancillary obligations and for credit — and treating one as the other is a source of assessment.

Tax base and the relationship with IBS and CBS

The IS tax base is, as a rule, the sale price on commercialization (art. 414, I), with specific rules for auction, mineral extraction and non-onerous transactions, where a reference value is used. In the IS’s own base, the CBS, the IBS and the Selective Tax itself are not included (art. 417, I).

The reverse path, however, is different — and tends to confuse. The Selective Tax is included in the IBS and CBS tax base: art. 12, §2, of LC 214 lists what is excluded from that base (IBS, CBS, IPI, ICMS, ISS, PIS/COFINS) and does not include the IS among the exclusions; and, on import, art. 69, II, expressly adds the Selective Tax to the IBS and CBS base. In practice, the IS enters the value on which the two dual-VAT taxes are charged.

For the final consumer, this means the IS makes the product more expensive and also forms part of the base of the other taxes. For the company, it is a cost that generates no credit — weighing on price formation and on the margin of each product line.

Criticism and controversy

Few Reform taxes spark as much debate as the Selective Tax. An honest look records both sides:

In favor. The IS gives the State a tool to internalize into the price the social and environmental costs of harmful goods — tobacco, alcohol, sugar, pollution. It is the sin tax logic adopted in much of the world, now concentrated in seven categories instead of the dispersion of the old IPI.

The objections. Three points concentrate the criticism. First, the IS generates no credit and is still part of the IBS and CBS base — it becomes a cascading cost on the final price. Second, there is the fear that the regulatory purpose slides into revenue-raising: a tax created to discourage may, in practice, become a revenue source. Third, the uncertainty: since rates will only come by ordinary law — except the 0.25% cap on mineral goods — sectors such as mining, beverages and consumer goods plan in the dark until each law closes the numbers.

None of these points invalidates the tax, but all demand attention. For an exposed company, the controversy has a concrete effect: it defines how much of the tax fits in the price and how much weighs on the margin.

Strategy for impacted sectors

Companies in the seven IS categories need to structure operational readiness and a commercial strategy now, even before the ordinary law closes the numbers:

1. Classification mapping by NCM/SH — confirm which portfolio products fall into each category, and where the law already locks limits (such as the 0.25% cap for mineral goods).
2. Post-IS final-price modeling — price considering IBS + CBS + IS, remembering that the IS is part of the base of the first two and generates no credit.
3. Demand-elasticity analysis — estimate how much of the IS can be passed on to the consumer without a significant loss of volume.
4. Tracking the ordinary law and the 90-day rule — rates will be set by category, phased in from 2029 to 2033 for beverages, tobacco and sugary drinks; each change respects the ninety-day period.

The TaxUp team reads Book II of LC 214 applied to each company’s operation — classification by category, margin impact by product line, and an adaptation schedule through 2027 and beyond.