Brazil's tax reform promises simplification but signals higher business costs

Brazilian businesses are bracing for the financial impact of the country's sweeping tax reform, which, despite promises of simplification, is widely expected to increase the overall tax burden. The reform, intended to streamline Brazil's complex tax system, is now projected to introduce a value-added tax (VAT) with a rate that could reach 28%. This would place Brazil among nations with the highest consumption taxes globally.

The burden of this increased taxation is not expected to be distributed evenly. The service sector, encompassing a wide range of professionals, consultants, and technology firms, anticipates feeling the effects most acutely. While certain segments of industry and agribusiness may retain preferential treatment or benefits, service providers foresee their profit margins being squeezed. This could force medium-sized businesses to absorb higher costs, renegotiate contracts, or pass the increased expenses onto consumers.

Amid growing uncertainty about the reform's financial implications, particularly during a period of economic slowdown, high interest rates, and operational pressures, a proposal to suspend its implementation for one year has emerged. Senator Flávio Bolsonaro has put forward this idea, which resonates with business leaders seeking to re-evaluate the new model. However, the feasibility of such a suspension is questionable, given the political and legal complexities involved and the significant preparatory steps already undertaken by companies, states, and municipalities since January 2026.