Economy

Sin tax: understand charging on cigarettes, drinks and vehicles

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Briefings

The Brazilian government published a provisional measure (MP 1.399/2026) establishing temporary tax rates for the Imposto Seletivo (IS), commonly called 'Imposto do Pecado'. The new tax applies to harmful products like cigarettes, alcoholic beverages, and vehicles, with collection starting in February 2027. Temporary rates are based on current IPI taxes, with final rates determined later in 2028. Key rates include 66.7% for cigarettes, 6.3% for passenger cars, and zero rates for specific vehicle categories like those for people with disabilities. The measure excludes credit recovery for previously taxed items.

Key points

• The Imposto Seletivo (IS) is a federal tax created by the 2024 tax reform to discourage consumption of products harmful to health or the environment, with collection starting in February 2027.
• Temporary tax rates for IS are set at 66.7% for cigarettes and 6.3% for passenger cars, with final rates determined later in 2028 based on vehicle characteristics and environmental criteria.

Context

The Imposto Seletivo is part of Brazil's 2024 tax reform, replacing the old IPI system. Collection begins in February 2027 with temporary rates, with final rates determined in 2028. The measure targets harmful products including cigarettes, alcoholic beverages, and vehicles, with zero rates for specific vehicle categories like those for people with disabilities.

Limitations

Temporary tax rates are set for February to December 2027, with final rates determined later in 2028. The measure excludes credit recovery for previously taxed items, and final rates depend on vehicle characteristics and environmental criteria.

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