Tax Reform and the Telecommunications Sector: Preparing for the New Era of Taxation

Brazil’s Tax Reform, established by Constitutional Amendment No. 132/2023, replaces five federal, state, and municipal taxes with two new ones: the Tax on Goods and Services (IBS) and the Social Contribution on Goods and Services (CBS). This transformation represents a historic milestone, with profound impacts on heavily taxed sectors such as telecommunications. This article highlights the main aspects that companies in the sector should monitor to ensure an efficient transition in compliance with the new legislation.

The New Concepts: IBS, CBS, and Full Non-Cumulativity

The tax reform provides for the extinction of ICMS, ISS, IPI, PIS, and COFINS, replacing them with two new consumption taxes: the IBS, under state and municipal jurisdiction, and the CBS, under federal jurisdiction. In addition, a Selective Tax (IS) is introduced, aimed at discouraging products and activities deemed harmful; this tax will not apply to telecommunications services.

The pillars of the new regime are:

• Broad scope: applies to tangible and intangible goods, assignment of rights, and the provision of services.
• Destination principle: taxation occurs at the place of consumption.
• Full non-cumulativity: full credit on acquisitions, except in cases involving goods and services for personal use or consumption, exempt, immune, or zero-rated transactions, as well as other constitutional exceptions.

Transition Timeline

The Telecommunications Sector and the History of High Tax Burden

Brazil holds a prominent negative position in the international landscape regarding taxation on telecommunications services. Official data from the National Telecommunications Agency (ANATEL) indicate that in 2019, the total tax burden reached 40.15%, placing the country as the fourth most expensive for mobile telephony and the most expensive for fixed broadband among more than 170 nations. This high taxation directly impacts the end consumer, limits the universalization of access, and undermines digital inclusion goals.

Despite the enactment of Complementary Law No. 194/2022, which recognized telecommunications services as essential and imposed limits on ICMS rates (which, after its implementation, ranged between 17% and 29%, depending on each State’s legislation), medium-term projections require caution. Sector estimates—such as those published by Conexis Brasil Digital—indicate that with the implementation of the tax reform, the effective tax burden on the sector could reach 28.3%, potentially exceeding 30% when sector-specific funds (such as FUST and FUNTTEL) are included. In this scenario, adopting tax planning practices and continuous regulatory monitoring is advisable to mitigate impacts on pricing, investments, and the expansion of connectivity infrastructure.

Operational and Tax Changes in the Sector

The NFCom (Electronic Invoice for Communication Services, model 62) is the specific electronic tax document for recording and billing communication and telecommunications services. It was created to replace models 21 and 22, integrating the service invoice and the tax document into a single digital file.

Its mandatory use began on November 1, 2025, with a conditional extension allowed until August 1, 2026, under a special state regime, as established by SINIEF Adjustment No. 25/2025 (which amended SINIEF Adjustment No. 07/2022).

The layout has been updated to include fields for IBS, CBS, and the Selective Tax (IS), aligning the document with the consumption tax reform implemented by Complementary Law No. 214/2025.

This change streamlines fiscal compliance and ensures that taxation under the new regime is accurately captured directly in the billing process.

In the telecommunications sector, it is common for companies to provide, in addition to typical telecommunications services (historically subject to ICMS and now absorbed by IBS), other services classified as communication/value-added services or related activities subject to ISS (municipal jurisdiction).

During the transition period and until the abolition of ISS on January 1, 2027, the municipal obligation to issue the NFS (Nota Fiscal de Serviços) remains in effect for services actually subject to ISS.

In parallel, telecommunications service providers…

If you want, I can continue and complete the sentence into a full, flowing English paragraph explaining the remaining obligations and implications for providers during the transition. Do you want me to do that?

In the telecommunications sector, it is common for companies to provide, in addition to typical telecommunications services (historically subject to ICMS and now absorbed by IBS), other services classified as communication/value-added services or related activities subject to ISS (municipal jurisdiction).

During the transition period and until the abolition of ISS on January 1, 2027, the municipal obligation to issue the NFS-e remains in effect for services actually subject to ISS.

At the same time, telecommunications service providers must issue the NFCom, covering not only telecommunications services but all services they provide. This situation raises concerns for these companies because the issuance of NFCom will trigger the highlighting and collection of IBS/CBS. However, since the NFS-e must still be issued for certain services, IBS/CBS will also be highlighted there, creating a potential duplicate collection of these taxes.

If you want, I can also rephrase this in a concise, reader-friendly version for reports or presentations.

Additionally, another concern for the sector is the issuance of electronic documents by terminal. The allocation of IBS between the state and municipality of consumption often makes it unfeasible to issue a single NFCom per customer when multiple terminals are installed in different municipalities—even within the same state.

This situation may significantly increase operational complexity, requiring companies to issue separate NFComs for each terminal to ensure correct tax allocation, potentially increasing administrative costs and the risk of errors in compliance.

In these scenarios, the operator must:
1 update its records with the addresses of all contracted terminals; and
2 issue an individualized NFCom for each terminal located in a different municipality, ensuring the correct allocation of IBS.

This requirement may multiply the number of documents per customer, increasing operational complexity, compliance costs, and potentially affecting the billing experience—raising the risk of customer dissatisfaction and delinquency.

Related Services and Broad Credit

The establishment of IBS and CBS under Complementary Law No. 214/2025—both structured on the principle of non-cumulativity and supported by a broad economic base—potentially brings into the tax net operations that, under the previous regime, were not subject to ICMS or ISS due to historical distinctions in materiality and jurisdiction.

In this context, it is important to note that under the system in effect until December 31, 2026, Value-Added Services (VAS), when not classified as service provision in the Annex List of LC No. 116/2003, were not subject to ISS. Similarly, ICMS was not applied to purely ancillary activities or means (e.g., pure equipment rental), since these did not constitute the circulation of goods or a typical communication service.

This change under IBS and CBS expands the taxable base, potentially bringing these previously exempt services into the scope of consumption taxation, while allowing the utilization of broad input tax credits under the non-cumulative regime.

With the reform, the expanded concept of “provision” and the emphasis on destination-based taxation (with revenue shared between the State and Municipality in the case of IBS) tend to bring into the tax net operations that were previously neutral or marginal, such as:

Rental or leasing of machinery and equipment;

• Infrastructure sharing through paid assignment;

• Leasing of “dark” fiber;

• Contractual penalties and default charges (when considered an inseparable part of the price);

Value-Added Services (VAS) and the provision of digital content.

In specific cases, even operations already subject to ISS—such as certain VAS or digital content services classified under LC No. 116/2003—may experience an increase in the effective tax burden due to the replacement of ISS by IBS and the crediting parameters established under the new regime.

This means telecom operators need to carefully analyze all their service offerings, not only for compliance but also to anticipate changes in effective taxation and cash flow impacts.

It is important to note, however, that the effective applicability of IBS/CBS to each transaction will depend on the concrete tax-legal qualification (including the object, price, frequency, and economic link to the main supply), the applicable subordinate regulation (including SINIEF Adjustments and technical manuals, such as the NFCom – model 62), and contractual structuring.

It is therefore recommended to conduct a detailed mapping of operational flows, segmentation of contracts, and review of customer records (including identification of the place of consumption and the purchaser’s domicile, according to the destination rules) to mitigate the risk of double taxation and optimize the use of tax credits under the new system.

If you want, I can condense all these points into a clear, executive-style summary suitable for a report or presentation.

Cashback Mechanism

The cashback mechanism established under the tax reform is designed to refund a portion of the tax levied on essential consumption for low-income families, ensuring:

• Full reimbursement of CBS (100%)

• Partial reimbursement of IBS (20%)

on purchases of items from the expanded basic basket, as well as electricity, gas, and telecommunications services.

The benefit is targeted at individuals registered in the Cadastro Único for Social Programs (CadÚnico), whose monthly per capita family income does not exceed half the national minimum wage, subject to eligibility criteria, registration verification, and activation procedures established in the specific regulations.

This mechanism aims to mitigate the regressive impact of consumption taxes while promoting access to essential goods and services for vulnerable populations.

The implementation of the cashback mechanism requires real-time system integration between the billing systems of service providers and the CadÚnico databases, in order to validate beneficiary status at the time of issuing the tax document and calculate the refundable amount.

However, this requirement impacts the operational feasibility of the NFCom (model 62), as constant queries to the government registry can slow down the issuance flow, increase rejections, and compromise authorization timelines.

For this reason, the telecommunications sector has been engaging with public authorities to define a technical and procedural solution that ensures access to the benefit without disrupting operations, discussing alternatives such as:

1. Preliminary and periodic eligibility validation – maintaining batches of beneficiary lists for offline reference;

2. Eligibility markers in the customer database – with defined validity periods and update routines;

3. Settlement and reversal models – ensuring documentary compliance and traceability for tax authorities.

This approach aims to balance operational efficiency with regulatory compliance, allowing the cashback benefit to function effectively for eligible low-income consumers.

Conclusion

We know that the main objective of the Tax Reform is to simplify the Brazilian tax system, reducing legislation and ancillary obligations, thereby making daily compliance easier for taxpayers.

However, the transition brings immediate challenges, including:

• System adaptation;

• Updating customer and operational registries;

• Managing duplicate tax documents;

• Increased issuance of fiscal documents;

• Integration with CadÚnico for the cashback mechanism.

These challenges must be closely and proactively monitored with the competent authorities to ensure that regulations do not hinder sector operations and to minimize risks and costs.

Strategic preparation is essential to turn transitional complexity into a competitive advantage in the new era of Brazilian taxation.

1 A terminal is the equipment used by the end user to access the mobile network. In simple terms, it is the device that connects to the operator’s infrastructure to send and receive voice, data, and messages, such as a mobile phone.

2 A Value-Added Service (VAS) is any ancillary service to telecommunications activities that adds utility to the basic service (such as voice or data) without itself constituting a telecommunications service, as defined in Article 61 of the General Telecommunications Law.

In other words, these are services that use the telecom infrastructure (network, signal, data) as a means to deliver a complementary benefit, without being communication itself.

Typical examples include:

• Ringtones and caller tunes;

• Voicemail;

• News or alerts via SMS;

• Cloud storage;

• Antivirus services;

• Messaging apps;

• Content platforms;

• Educational services.

All of these enhance the user experience and operate as services “on top of” the main network.

3 Infrastructure sharing through paid assignment means that a company owning towers, antennas, or other telecommunications equipment allows another company to use this infrastructure in exchange for payment.