Bank of America has released a handbook laying out the mechanics and sectoral implications of Brazil's upcoming value-added tax system, which will replace a set of existing indirect taxes with a dual-VAT framework. Under the plan described in the handbook, the federal-level CBS and a state- and municipal-level IBS will supplant multiple indirect levies, while the reform aims to make input-credit eligibility simpler.
The report emphasizes that headline tax rates alone will not determine who ultimately bears the burden. Because the new VAT structure allows customers to reclaim input VAT credits in many cases, the net incidence - after credits are applied - will be the decisive factor in assessing effective tax pressure. BofA notes that when VAT can be reclaimed, the effective burden may be materially lower than the headline rate would indicate, which could also affect how easily companies can pass costs on to prices.
Implementation is planned to begin with a test phase in 2026, followed by a more substantial rollout from 2027. BofA's analysis highlights the telecommunications sector as the most exposed segment once the transition intensifies in 2027. The report specifies that telcos whose current tax profiles are less exposed to federal levies such as PIS, Cofins and IPI - and whose cost bases are relatively poor in creditable inputs - will be particularly vulnerable to higher net liabilities under the new VAT regime.
Within that group, TIM is identified as the clearest early negative in the bank's assessment, with Vivo also singled out as facing exposure to a lesser extent. The handbook forecasts a persistent high steady-state tax burden for telecommunications companies under the new system, although it makes an exception for Claro and America Movil, which the report treats differently in its steady-state outlook.
Looking further ahead, BofA projects that by 2033 - the point of full convergence to the VAT system - technology platforms and software firms that carry relatively high personnel costs will see the largest long-run increases in headline tax rates. The report attributes that outcome to structurally lower deductibility for labor-heavy cost structures, which reduces the ability to offset tax via input credits.
Despite detailing these sectoral implications, BofA states it is not currently embedding any tax-reform effects into its financial models and is keeping its ratings unchanged for all companies mentioned in the handbook.
Key context provided by BofA:
- The reform replaces multiple indirect taxes with a dual CBS (federal) and IBS (state/municipal) VAT structure.
- Transition begins with a 2026 test phase and scales up from 2027; full convergence expected by 2033.
- Net tax incidence after input credits, not headline rates alone, will determine effective burdens.