Selective Tax vs IPI: What Changes for Manufacturers Under the New Selective Tax
Understand the differences between the Selective Tax and the IPI, how the transition affects the industrial sector, and the impact on product pricing.
Executive Summary
The Selective Tax (Imposto Seletivo, IS) replaces part of the IPI starting in 2026, but it is not just a name change — it brings profound shifts in how taxes are calculated, how credits are claimed, and how prices are passed along the supply chain. For an industrial company’s financial manager, understanding these differences is essential to avoid surprises in tax compliance and cash flow. Below, Vivian Sampaio compares what changes and what stays the same.
What the IPI Was and Why It Was Replaced
The Tax on Industrialized Products (IPI) was created in 1965 and served two functions: revenue collection and extra-fiscal regulation. In practice, the government used it both to generate revenue and to encourage or discourage specific sectors — domestic industry, capital goods, particular products.
With the Tax Reform, the IPI loses its reason to exist on the industrial side and is replaced by three mechanisms:
- CBS (Contribution on Goods and Services) — federal, non-cumulative
- IBS (Tax on Goods and Services) — federal and state, non-cumulative
- IS (Selective Tax) — federal, extra-fiscal, with no credits
The transition is gradual, and LC 214/2025 establishes that the IPI will be progressively phased out as the IS reaches full operation.
Key Differences: IS vs IPI
1. Tax Base and Cumulativeness
IPI: Partly cumulative — it applies at each stage of the chain, and credit is only claimed at the subsequent stage through a complex crediting system (standard credit table). For many products, there was effective cumulativeness.
IS: Non-cumulative — it applies a single time at the manufacturer’s or importer’s transaction. The subsequent buyer is not entitled to a credit. This means that, for a retailer who buys a product subject to the IS, the tax is a sink cost.
Practical example — Alcoholic beverage: A brewery sells 10,000 liters of beer for R$ 50,000 (base price). The IS applies at 15% = R$ 7,500 in tax. The wholesaler buys it for R$ 50,000 + IS = R$ 57,500, but cannot claim a credit for the R$ 7,500. When it sells to the retailer for R$ 65,000, the IS already paid is built into the cost and does not appear in the tax records as a credit.
2. Products Covered
IPI: Covered almost all industrialized products, with variable rates from 0% to 150%, depending on the product and its classification in the TIPI (IPI Incidence Table).
IS: Covers only specific products — tobacco, alcohol, sugary beverages, fuels, vehicles. For industrial products outside the list, the IPI is gradually replaced by CBS/IBS (which does not apply to the sale of goods — only services).
3. Destination of the Revenue
IPI: Revenue is freely available for the federal budget.
IS: Revenue is earmarked for specific health, environmental, or social-program funds — this is still being defined in supplementary legislation.
4. Harmonization with CBS/IBS
IPI: Operated independently, with its own rules on crediting, tax substitution, and exemptions.
IS: Operates jointly with the CBS and IBS — for products subject to the IS, the CBS/IBS applies normally to the transaction, and the IS applies additionally.
Impact on Cost Structure: Example of a Beverage Company
Let’s consider a beverage company (beers and soft drinks) that sells to a wholesaler:
Current situation (with IPI):
- Gross revenue: R$ 100,000
- IPI on beer (15%) + IPI on soft drinks (10%): ~R$ 12,000
- IPI credit claimed by the wholesaler: ~R$ 10,000
- Effective IPI cost to the chain: ~R$ 2,000
Future situation (with IS):
- Gross revenue: R$ 100,000
- IS on beer (15%) + IS on soft drinks (10%): ~R$ 12,000
- IS credit for the wholesaler: R$ 0 (no right to a credit)
- Effective IS cost to the chain: R$ 12,000 (the entire tax stays in the chain as a cost)
Analysis: The IS is more burdensome for the chain because it generates no crediting. The wholesaler fully absorbs the tax into the sale price, and this raises the final price to the consumer — which, in theory, is the tax’s extra-fiscal objective.
How the Financial Manager Should Prepare
Short Term (2026–2027)
- Portfolio mapping: identify which SKUs are subject to the IS
- Contract review: check tax pass-through clauses with customers and suppliers
- Cost projection: recalculate the price structure with the IS as a sink cost
- Customer negotiation: prepare arguments to adjust prices without eroding margins
Medium Term (2027–2028)
- Product mix review: assess whether more heavily taxed products stop being profitable
- Investment in efficiency: reduce operating costs to offset the higher tax burden
- Regulatory monitoring: track the publication of IS regulations for each sector
Summary Table: IS vs IPI
Want to understand how the Tax Reform affects your sector? On /naprática, VMAHUB publishes practical guides for businesses. For a tailored analysis of your case, talk to our team: [email protected]
Read also:
- Sin Tax: What the Selective Tax Is
- CBS: What It Is and How It Replaces PIS/Cofins
- Does the Tax Reform Raise Taxes?
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