Sin Tax and Tax Reform: Impacts and Strategies for Foreign Trade

Behind the scenes of the Brazilian economy, Tax Reform is beginning to take concrete shape, and with it, new guidelines are emerging that promise to transform the dynamics of several productive sectors.

One of the most sensitive and strategic changes for the industry is the creation of the Selective Tax, popularly known as the “sin tax”.

Amid this new scenario, industries need to do more than just follow the news; it is time to anticipate, understand the real impact of this change and rethink strategies.

In this article, you will find out which sectors should be directly affected, what changes with the advancement of Tax Reform and, most importantly, how your company can prepare for a scenario that is already underway. Enjoy your reading!

WHAT IS SIN TAX?

This taxation is not exactly new on the global scene, but it has been gaining momentum in Brazil with the debates on Tax Reform.

This is a tax applied to products or services considered harmful to public health or the environment. In practice, this includes items such as cigarettes, alcoholic beverages, soft drinks, products with high sugar, fat or sodium content, among others.

The logic behind this measure is to discourage excessive consumption of these products by increasing the final price to the consumer. It is a strategy used by several countries as part of public health and environmental policies, such as the United States and Denmark.

However, the sin tax goes beyond simple taxation, as it has an extra-fiscal function, that is, it does not only aim to generate revenue, but also to induce healthier or more sustainable behaviors.

For Alexandre Gera, CEO of DigiComex, the Selective Tax aims to “disincentivize products that are harmful to health because, in addition to the human view, it also has the view of hospitals and public treatments that end up needing to invest millions in treatments that could be avoided, including damage to the environment and the entire ecosystem, such as fishing and other inputs that are ‘extracted’ from nature”.

The implementation of the Selective Tax is scheduled for 2027. Until then, there will be a planned transition period, in which the IPI will be gradually reduced to zero and completely eliminated by 2033.

WHAT IS THE RELATIONSHIP BETWEEN THE SIN TAX AND THE TAX REFORM?

At the heart of the connection is the creation of the so-called Selective Tax (IS), one of the pillars of the new tax structure that is being implemented in Brazil.

According to E-investidor of Estadão, “one of the main novelties brought by the Tax Reform approved in December 2024 is the so-called ‘Sin Tax’, or Selective Tax (IS). This tax targets products and services that may harm health or the environment”.

The main focus of the Tax Reform is to simplify and modernize the Brazilian tax system, replacing a series of taxes with two large blocks: the dual VAT (with the CBS and the IBS) and, in parallel, the Selective Tax.

The Selective Tax is precisely the official version of the sin tax, which is expected to be levied on goods and services considered harmful to health or the environment. It will be a federal tax, of a regulatory nature, and its application will be detailed through complementary laws.

In other words, the Reform not only recognizes but also institutionalizes the sin tax within the country’s new tax logic.

WHAT WILL BE TAXED BY THE SIN TAX?

Taxgroup explains that “because it is a single-phase tax, levied only once, it is seen by many experts as less complex. It is levied once to have an effect on the price and combat negative externalities, that is, to increase the price of the product that one wants to have less consumption”.

Therefore, the Selective Tax will be applied to goods and services considered harmful to health or the environment. Find out below what they will be:

Alcoholic beverages

Items such as beer, wine, spirits and the like are already subject to selective taxation and, within the new structure, should continue to be subject to strong tax incidence.

The justification is the proven impacts that alcohol has on public health, in addition to the social costs associated with its abusive consumption.

Cigarettes and tobacco products

These include everything from traditional cigarettes and cigars to the most recent products, such as hookahs and electronic devices (vapes and electronic cigarettes).

It is one of the categories with the greatest regulatory consensus, due to the high health risk and the billion-dollar costs that smoking generates for the public health system.

Sugary drinks and soft drinks

Products such as soft drinks, artificial juices and industrialized teas with a high sugar content are increasingly being associated with problems such as obesity, diabetes and cardiovascular diseases.

Luxury vehicles

Items such as luxury cars, boats and private aircraft will also be targeted by the IS, as they are seen as non-essential consumer goods. Taxation will directly affect the import of these products, making them more expensive and less accessible.

Fossil fuels

Items such as gasoline, diesel and coal have been identified as priority targets, due to their high environmental impact and direct contribution to greenhouse gas emissions. Environmental taxation in this case seeks to stimulate the energy transition.

Betting and gambling

With the expansion of online gaming platforms, the topic has gained relevance in the tax and regulatory agenda.

Although they represent a growing market, these activities carry the potential for social harm, such as addiction, debt and impact on mental health.

Read also: Compliance in Industries: Complete Guide to Avoiding Risks and Ensuring Safety

MAIN IMPACTS OF THE SIN TAX ON THE INDUSTRIAL SECTOR

With the arrival of the Selective Tax, industries that work with products considered harmful to health or the environment will face significant changes in their operating models, pricing and tax planning.

Alexandre Gera explains that the retail, foreign trade, tax, accounting and IT sectors will also be directly affected due to changes related to costs. In addition, “even more accurate control over NCMs and their tax classifications will be necessary, including the detailed origin of the suppliers of the inputs due to the new DUIMP product catalog, where data needs to be structured and integrated to avoid fines, penalties and even practically incalculable losses such as ‘factory shutdowns with employees being paid under a strict law such as the CLT’”.

Understand the main impacts, both in the domestic market and in foreign trade operations:

Increased tax costs

The main direct consequence of the IS is the increase in the tax burden on certain products.

Sectors such as alcoholic beverages, cigarettes, fossil fuels and ultra-processed foods will experience an increase in rates that directly impact final prices.

For imported products, this tax can make entry into the Brazilian market even more expensive, requiring a review of margins, negotiations with international suppliers and price repositioning.

Regulatory complexity and compliance

The IS will be accompanied by new ancillary obligations, specific controls and technical requirements.

The traceability of items such as tobacco, alcohol and fuels may be intensified, requiring companies to structure more robust internal controls, invest in technology and update their tax and logistics systems.

In foreign trade, this will also imply reviewing tax classifications (NCM), licenses and special customs regimes.

Impact on logistics and supply chain

Products subject to IS may require changes in logistics routes, distribution centers and inventory policies, especially if the tax is charged at specific stages of the chain.

Companies that import inputs or finished products will need to consider the effect of IS at the nationalization stage, which may change entry points into the country, imported volumes and distribution strategies.

Need for product reformulation

Companies operating in the processed food and beverage segments may be forced to review formulas and develop products with healthier profiles, seeking to avoid charging the tax or reduce its rate.

This regulatory pressure may accelerate innovation, but will also require investments, reformulation of labeling and compliance with health legislation.

Impact on image and relationship with consumers

The sin tax may reinforce negative perceptions about certain products, affecting the way brands should communicate with their audiences.

Industries that adopt a proactive stance, investing in sustainability, health and social responsibility, can transform this challenge into an opportunity for repositioning and gaining reputation.

Read also: DUIMP: The New Import Rules That Your Industry Needs to Know

7 TIPS ON HOW TO PREPARE YOUR INDUSTRY FOR THE SIN TAX AND TAX REFORM

The Tax Reform and the creation of the Sin Tax represent structural changes that require more than simple operational adjustments; they demand strategic and proactive action on the part of companies.

Although the increase in the tax burden on certain products can generate challenges, it also opens space for innovation, gains in competitiveness and repositioning in the market. See how companies can anticipate:

Mapping the product portfolio

Evaluate which company items are subject to IS. Identify risks and opportunities based on the analysis of margins, demand elasticity and impact on costs.

Review of tax and financial planning

Anticipate scenarios of increased tax burden. Simulate impacts on the final price and margins. Review tax strategies, seeking possible compensations, credits and alternatives to reduce impacts.

Adaptation of internal systems and processes

Update your industry’s ERP, tax and management systems to deal with the new requirements of the Tax Reform.

The systems must be able to generate detailed reports and ancillary obligations in accordance with the new formats and requirements of the Federal Revenue Service and other regulatory bodies. Automating these processes will reduce the risk of errors, rework and tax penalties.

Team training

The tax, accounting, legal and commercial areas must be up to date on the new legislation. Investing in training and internal alignment is essential to ensure compliance and agility in adaptation.

Review of the international chain with a focus on tax and regulatory issues

For companies that operate in import, export or international logistics, the Sin Tax can directly impact operational costs and market viability. Invest in strategic tax analysis, customs planning and regulatory compliance to make safer decisions and adapt quickly to the new requirements.

Review of the economic viability of imports

With the incidence of IS on products such as alcoholic beverages, cigarettes and luxury vehicles, it is essential to recalculate the costs of nationalization and assess whether imports remain competitive.

Pay attention to tax classification and customs rules

Make sure that the NCM classification of the products is correct. Subtle changes in classification can represent significant differences in the tax burden and application of IS.

Is your industry ready to operate with the new Selective Tax?

With V-Comex, you can simulate tax impacts, update NCM classifications, automate accessory obligations and ensure compliance with the new requirements of the Tax Reform.

Reduce errors, anticipate risks and transform tax requirements into a competitive advantage.

Talk to a Vockan specialist and see how V-Comex can prepare your operation for the future of foreign trade.