Bank of America: Brazil Tax Reform Will Reallocate Sector Tax Burden Starting in 2027

Investing.com - Bank of America has released a tax reform manual outlining how Brazil’s upcoming value-added tax system will redistribute tax burdens across industries rather than uniformly increasing taxes.

Brazil’s tax reform will replace multiple indirect taxes with a dual VAT structure, including the federal-level CBS and state and municipal-level IBS. The report notes that the new system aims to simplify input tax deduction eligibility.

Bank of America states that while some sectors may face higher nominal tax rates, the actual tax burden will depend on the net tax after deductions. When customers can claim VAT refunds, the effective tax burden may be lower than the nominal rate, making price pass-through easier.

The transition period will begin with a testing phase in 2026, followed by full implementation starting in 2027. Bank of America believes that telecom companies face the greatest risk in 2027, especially those currently less affected by federal taxes like PIS, Cofins, and IPI, and with fewer deductible items in their cost structure.

TIM is highlighted as the most obvious early negative case, with Vivo also facing some risk to a lesser extent.

By 2033, when the new system is fully transitioned, technology platforms and software companies—due to high labor costs—will face the largest long-term increases in nominal tax rates, as their deductible amounts are structurally lower. Telecom companies will continue to bear higher steady-state tax burdens, except for Claro and America Movil.

Bank of America states that it has not incorporated any tax reform impacts into its models and maintains the ratings of all companies mentioned in the report.

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