Tax Reform and Fuel Tax Relief Impact the Energy Sector

The implementation of tax reform in Brazil is creating uncertainty for the energy sector. Experts suggest that the transition to the new CBS and IBS taxes will likely increase the final electricity bill for consumers. The distributed generation model requires strategic revisions to remain competitive under the new tax framework.

The current system of PIS/Cofins, ICMS, and ISS will be phased out by 2033. Supplementary Law 214/2025 establishes a 70% reduction in rates for leasing and rentals, which directly impacts distributed generation businesses. Large power plants and hydroelectric facilities operate under different dynamics and may face varying scenarios as they adapt to the tax changes.

At the same time, the federal government has extended tax relief for gasoline and ethanol until December 9, 2026. The measure keeps PIS/Pasep and Cofins rates at zero to prevent inflationary pressure caused by oil market volatility abroad. The fiscal cost of this extension over the next thirty days is estimated at 2.76 billion Brazilian reais.

Subsidies for hydrous ethanol have also been extended for the same period. The government will allocate 813.41 million Brazilian reais to maintain the competitiveness of biofuels against fossil fuels. Federal officials state that extraordinary revenues from the oil sector will offset these costs to ensure the fiscal neutrality of these actions.