Changes on Brazilian Standard ICMS States for 2024
For those wondering "what is ICMS" in the context of Brazil's tax system, it's important to understand that ICMS Brazil is similar to a sales tax in Brazil but operates on a value-added principle. Unlike a simple sales tax, ICMS is a non-cumulative tax that allows for tax credits, making it more complex than the Brazil ISS tax (Imposto Sobre Serviços) or the IOF tax (Imposto sobre Operações Financeiras).
The Brazilian Tax Reform's final text, possibly to be enacted this week, has prompted certain Brazilian states to adjust their internal standard rates due to concerns about a potential impact on their autonomy in regulating and collecting ICMS (State-Level VAT). ICMS, which stands for "Imposto sobre Circulação de Mercadorias e Serviços" (Tax on the Circulation of Goods and Services), is a crucial component of the taxes in Brazil.
After the successful implementation of the Tax Reform, the ICMS (currently under state-level jurisdiction) will be collected centrally and then distributed to the Federation Units. This will follow a new specific method introduced by the government, which considers each state's share based on the average collection from 2024 to 2028.
Therefore, this restructuring has a direct impact on ICMS rates as States are encouraged to increase their rates to optimize collection.
So far, of the 27 Brazilian States, 10 States and the Federal District have made the changes official. However, there are others, such as Rio de Janeiro and Rio Grande do Sul, still in the voting process:
| State | Current Rate | New Rate | Initial Effects |
|---|---|---|---|
| Pernambuco | 18% | 20.5% | JAN/01/24 |
| Ceará | 18% | 20% | JAN/01/24 |
| Paraná | 19% | 19.5% | MAR/13/24 |
| Paraíba | 18% | 20% | JAN/01/24 |
| Rio Grando do Norte | 20% | 18% | JAN/01/24 |
| Rondonia | 17.5% | 19.5% | JAN/12/24 |
| Distrito Federal | 18% | 20% | JAN/21/24 |
| Bahia | 19% | 20.5% | FEB/07/24 |
| Maranhão | 20% | 22.0% | FEB/19/24 |
| Espirito Santo | 17% | 19.5% | APR/01/24 |
| Goiás | 17% | 19.0% | APR/01/24 |
These changes will have immediately after final prices, influencing the Manufacturing Price (PF) and the Maximum Price to the Consumer (PMC) of various products. For more insights on Brazil's monumental Tax Reform and its key takeaways, my previous blog on this topic would be a good start.
The adjustments in interstate rates and internal rates reflect the complex nature of tax compliance in Brazil's federal system, including the handling of input tax credits and tax debits .
Understanding ICMS and its application is crucial for businesses operating in Brazil, as it affects pricing strategies and overall tax planning.
Disclaimer
Please remember that the Vertex blog provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in the Vertex blog are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.
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