Luiz Felipe Menedin is a Brazilian tax attorney and coordinator of the tax advisory practice at Ayres Westin Advogados in São Paulo.
In this article, Menedin examines Brazil’s VAT reform and how it may be merely shifting complexity for taxpayers.
The true path goes over a rope which is not stretched at any great height but just above the ground. It seems designed more to make people stumble than to be walked upon.
— Franz Kafka,
The Zürau Aphorisms, No. 1 (1931).
For decades, few issues in Brazil have commanded more consensus than the need for tax reform.
Business leaders, economists, lawyers, academics, and public officials disagreed about nearly every aspect of taxation: rates, fiscal incentives, revenue sharing, constitutional powers, and the allocation of taxing authority among the three levels of government. Yet on one point they all agreed: Brazil’s tax system had become too complex.
That consensus ultimately produced Constitutional Amendment No. 132 of 20231 and, later, Complementary Law No. 214 of 2025,2 launching one of the most ambitious tax reforms ever undertaken in Brazil. The reform promises to replace a fragmented consumption tax system with a modern dual VAT built on simplicity, neutrality, transparency, and economic efficiency.
Few would dispute those objectives. The question now emerging is a different one: Is Brazil’s tax reform actually delivering the promised simplification, or is it merely relocating complexity from legislation to administration?
Recent remarks by Robinson Barreirinhas, head of Brazil’s Federal Revenue Service, illustrate why the question deserves attention. Discussing the future reference rate of the new contribution on goods and services, Barreirinhas explained that disclosing an estimated rate prematurely would be dangerous because it could fuel market speculation.3 He also noted that the method for calculating the rate is still being developed by the Federal Revenue Service, the Federal Court of Accounts, and technical advisers to the Senate — all under a very tight implementation schedule.
Public administration concerns make that caution entirely understandable. The reference rate is fundamental to preserving the revenue neutrality of the new system, and premature or inaccurate estimates could distort economic expectations and undermine public confidence during one of the most significant institutional transitions in Brazilian tax history.
For business, however, the statement reveals an uncomfortable paradox. Companies across Brazil are redesigning enterprise resource planning systems, renegotiating commercial contracts, restructuring supply chains, reviewing pricing policies, adapting compliance procedures, and redefining financial strategies — all without knowing one of the most fundamental economic variables of the tax system they are preparing to operate under.
The promised simplification increasingly coexists with uncertainty.
Here, unexpectedly, is where Franz Kafka becomes relevant.
The opening epigraph, drawn from The Zürau Aphorisms, reflects the paradox of a reform that promises a simpler path while creating new obstacles during its implementation. Kafka’s novel The Trial4 illustrates a different, though related, concern: institutional opacity. Kafka is often associated with bureaucracy, but The Trial makes that concern more concrete. The protagonist Josef K. awakens one morning to find himself accused of a crime that is never explained to him. Throughout the novel, he struggles to understand a proceeding whose rules remain out of reach to him alone: He does not know which rules govern his case, who makes the decisions, or how the procedure operates. His suffering arises not from being prosecuted, but from his inability to grasp what’s happening to him and why.
Any comparison between Kafka’s fiction and Brazil’s institutional reality must be approached with caution. The analogy is neither political nor ideological, but structural. Legal systems generate confidence when those they govern can know in advance the consequences of their actions. When that capacity weakens, legal uncertainty grows — not necessarily because the law itself is defective, but because its operation becomes difficult to predict.
One of the greatest achievements of Brazil’s tax reform was recognizing that the previous system had grown far too complex. Yet simplifying a tax system involves more than reducing the number of taxes. It also requires reducing the effort needed to understand how the system functions. That distinction has become more important during the implementation phase.
Today, businesses must simultaneously monitor constitutional provisions, complementary legislation, administrative regulations, technical standards, future acts of the Tax on Goods and Services Management Committee, developing technological platforms and electronic systems, and evolving calculation methods.
None of this suggests institutional disorganization. On the contrary, it reflects the enormous challenge of implementing an entirely new tax architecture within a compressed time frame. But the nature of the complexity has changed. Under the previous system, it resided primarily in legislation. Now, it increasingly resides in implementation. Businesses are no longer required merely to interpret legal provisions; they must also understand how the legislation interacts with a host of other aspects of the system.
Complexity has merely changed its address.
No feature of the reform better illustrates this than the split-payment mechanism.5 Conceptually, the model is elegant; operationally, it is demanding. Rather than relying exclusively on taxpayers to collect and remit VAT, split payment ties collection to the financial settlement of the underlying transaction. The objective is straightforward: reduce evasion, strengthen neutrality, improve security, and increase confidence in the tax system. It is one of the most innovative elements of Brazil’s new VAT architecture.
However, innovation inevitably generates questions. How will partial payments be treated? What happens when goods are returned after the tax has been settled? How will subsequent adjustments or denied input credits be reconciled? How will businesses operating on thin margins absorb the potential cash flow effects? How will commercial installment arrangements interact with automatic collection? And how will the mechanism operate in cross-border transactions, triangular operations, digital platforms, and marketplaces?
For decades, tax professionals in Brazil were concerned primarily with three questions: How much tax was due, who must pay it, and when it must be paid. The new VAT introduces a fourth — and perhaps more consequential — question: How will the system operate in practice?
Answering that involves much more than statutory interpretation. It requires understanding the interactions among legislation, digital platforms, payment infrastructure, settlement mechanisms, administrative procedures, and evolving technical standards. The complexity has become systemic.
Traditionally, certainty in tax law has been grounded in clear legislation that remains sufficiently stable over time, meaning the governing rules are not subject to frequent or unexpected changes. Clarity remains essential, but it is no longer sufficient. Businesses invest when risk can be measured; they commit to long-term contracts when costs can be anticipated. Legal certainty, in other words, now depends equally on predictability.
Barreirinhas’s statement thus raises an important question: If disclosing the reference rate too early could generate economic instability, what are the consequences of withholding that same information from businesses that must redesign systems, negotiate new contracts, reallocate capital, and otherwise prepare for the new regime?
This is neither an argument against the reform nor a criticism of the extraordinary effort required to implement one of the world’s most ambitious VAT transformations. It is simply a recognition that predictability is perhaps one of the most valuable assets a tax system can provide.
It is far too early to say whether Brazil’s tax reform will fulfill its promise of reducing litigation and producing a simpler consumption tax system. Once implemented, the new model may well prove much superior to the one it replaces. Yet one conclusion already seems unavoidable: The simplicity of a tax system cannot be measured solely by the number of taxes it abolishes. It must also be measured by how well those subject to it can understand its operation.
The Trial reminds us that the greatest anxiety invoked by power does not necessarily arise from punishment but from the struggle of navigating a system whose rules always seem just out of reach.
FOOTNOTES
1 Emenda Constitucional n. 132, de Dezembro de 2023 (in Portuguese).
2 Lei Complementar n. 214, de 16 de Janeiro de 2025 (in Portuguese).
3 Giordanna Neves, “Divulgação Antecipada da Alíquota da CBS é ‘Muito Perigosa’, diz Barreirinhas,” Valor Econômico (June 25, 2026) (in Portuguese; translated by the author).
4 Franz Kafka, The Trial (1925).
5 Lei Complementar n. 214, at arts. 27(III) and 31-35.
Publicado no Taxnotes.