Impacts of the Tax Reform on Fiscal Incentives in the Fertilizer Industries in Rio Grande do Sul

Maria Eduarda Costa; Milena Moscardini Nabelice Guasti Lima

DOI: 10.22167/2675-6528-202603243

Article derived from a Course Conclusion Work (TCC), with content based on the student’s original work and adapted to the editorial format of the E&S Magazine with the support of the ResumeAI tool, an artificial intelligence solution developed by Instituto Pecege for textual synthesis and organization.

Summary

This study analyzed the potential impacts of the tax reform on tax incentives applicable to the fertilizer industries in Rio Grande do Sul. The objective was to identify the main state tax incentives, analyze the changes resulting from the reform, and evaluate their effects on the tax burden of operations. The research adopted a mixed methodological approach, of an exploratory-descriptive nature, combining qualitative and quantitative analysis. Documentary analysis of Constitutional Amendment No. 132/2023 and tax legislation was used, complemented by a case study in a company in the fertilizer sector, whose data supported simulations. A simulation of the incidence of the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS) was carried out, considering estimated rates and the sectoral reduction foreseen for agricultural inputs. The results showed a change in the logic of tax incentives, with the substitution of direct benefits for a system of non-cumulativeness and greater potential for credit utilization. However, the impact of the reform was not uniform, being directly related to the operational structure of companies and the nature of suppliers. It was concluded that the sector’s competitiveness will depend on efficient credit chain management and the reorganization of operations, requiring companies to adapt to the new rules proposed by the Tax Reform.

Keywords: CBS; Tax credit; IBS; ICMS; Non-cumulative.

1. Introduction

The structure of the Brazilian tax system is frequently pointed out as one of the factors that contribute to the high complexity of the fiscal environment in the country, generating significant costs for companies to comply with tax obligations. This intricate environment demands considerable time and resources. For example, companies in Brazil dedicate, on average, approximately 1,501 hours annually to meeting federal fiscal requirements, a volume substantially higher than the approximately 159 hours observed in member countries of the Organization for Economic Cooperation and Development (Costa and Oliveira, 2024).

Part of this complexity arises from the high number of taxes levied on consumption, such as the Tax on Circulation of Goods and Services (ICMS), the Tax on Industrialized Products (IPI), the Social Integration Program (PIS), and the Contribution for the Financing of Social Security (COFINS) (Souza and Moura, 2024). The coexistence of these taxes can generate cumulativeness, cascading incidence, and an increase in tax litigation, culminating in the widely known phenomenon of “tax war” between federative entities. In response to this scenario, Constitutional Amendment No. 132/2023 (Brazil, 2023) was promulgated, initiating the transition to a dual Value Added Tax (VAT) model, composed of the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS). The proposal aims to promote greater simplification, as well as ensure neutrality, transparency, and efficiency in the tax system, seeking to reduce tax war by limiting non-uniform incentives and directing revenue to the destination (Abraham and Lannes, 2024).

These changes may generate challenges and uncertainties for the fertilizer sector in the State of Rio Grande do Sul, historically dependent on tax incentives, both state (ICMS) and federal (PIS/COFINS). It is observed that the sector benefits from mechanisms such as exemptions, deferrals in domestic operations, and reductions in the tax base for interstate operations, which contributes to its competitiveness in the market. The substitution of tax incentives with mechanisms of a budgetary nature, such as the Regional Development Fund (FDR), as provided for in Constitutional Amendment No. 132/2023 (Brazil, 2023), represents a change in the form of state intervention, with potential impacts on the sector’s regional competitiveness (Bonatto and Schreiber, 2026; Tonetto et al., 2025).

Given this context, the transition to the new tax model, with the introduction of IBS and CBS, implies a redefinition of the logic of tax incentives and the credit system along the production chain. Understanding the impacts of this reform is fundamental for companies in the fertilizer sector, which will need to adapt their strategies and operations to the new rules. In this scenario, the present study seeks to answer the following question: how might the tax reform impact the tax incentives currently used by fertilizer industries in the state of Rio Grande do Sul? The relevance of this study lies in the need to understand the implications of these changes for the economic sustainability and competitiveness of a vital sector for the economy of Rio Grande do Sul, which traditionally relies on a complex system of tax benefits.

Thus, the present work is justified by the urgency in analyzing the tax transformations and their direct effects on a strategic productive segment. Therefore, the objective of this work is to analyze the potential impacts of the tax reform, instituted by Constitutional Amendment No. 132/2023 (Brazil, 2023), on the tax incentives of the fertilizer sector in Rio Grande do Sul, considering the end of the tax war, the redistribution of competences between federative entities, and possible changes in the tax environment.

2. Material and Methods

The research conducted was applied in nature and adopted a mixed methodological approach, combining qualitative and quantitative elements. Regarding the objectives, the study was characterized as exploratory-descriptive, seeking to analyze the potential impacts of the tax reform on the fiscal incentives of the fertilizer sector in Rio Grande do Sul. The main research strategy consisted of a case study, complemented by documentary analysis and simulations.

In the qualitative dimension, the research was based on a comprehensive bibliographic and documentary analysis. A survey of current legislation pertinent to tax reform and specific taxation of the fertilizer sector was carried out. This procedure aimed to understand the legal framework and the proposed changes affecting the industries’ fiscal environment.

The analyzed documents included Constitutional Amendment No. 132/2023 (Brazil, 2023), which instituted the tax reform, and state norms for the Tax on Circulation of Goods and Services (ICMS), such as Agreements ICMS No. 100/1997 (CONFAZ, 1997) and No. 26/2021 (CONFAZ, 2021), in addition to the ICMS Regulation of the State of Rio Grande do Sul (Rio Grande do Sul, 1997). Federal norms were also examined, such as Law No. 10.637/2002 (Brazil, 2002), Law No. 10.833/2003 (Brazil, 2003), and Decree No. 7.212/2010 (Brazil, 2010), which regulate PIS, COFINS, and IPI, respectively.

The quantitative dimension of the study incorporated data from a case study applied to a company in the fertilizer sector. This company, located in Rio Grande do Sul, was selected for its representativeness in the segment and for the availability of relevant operational information for the proposed analysis. The data collected referred to the company’s commercial operations.

To ensure the confidentiality and privacy of the participating company, its identification was omitted, and all data were treated anonymously. The information obtained was used to support the simulations developed in the study, allowing the projection of the impacts of the tax reform in a real business scenario.

The data analysis followed the logic of methodological triangulation, integrating qualitative and quantitative information. Qualitative information was obtained through the interpretation of legislation and academic literature, while quantitative information was based on fiscal and economic indicators of the studied company. This integration allowed for a multifaceted understanding of the potential impacts of the tax reform on the tax incentives applicable to the fertilizer industries.

Within the scope of quantitative analysis, a simulation of the incidence of the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS) was carried out. For this simulation, estimated rates for the new taxes were considered, as well as the sectoral reduction for agricultural inputs, according to Constitutional Amendment No. 132/2023 (Brazil, 2023) and Complementary Law No. 214/2025 (Brazil, 2025a). The company’s operational data were applied to these parameters to project the tax scenarios.

The simulation procedures involved applying the estimated IBS and CBS rates to the company’s operations, considering the non-cumulative rules and the potential for credit utilization. This process allowed for a comparison of the tax burden under the current regime with that projected in the new model, without, however, presenting the numerical results or conclusions of this comparison in this section.

3. Results and Discussion

The tax reform on consumption, as outlined by Cruz (2025), introduces a structural change in the tax incidence, redirecting the focus of tax incentives towards a credit system. Although Oliveira and Silva (2025) point to the provision of reduced rates for agricultural inputs, the economic impacts of the reform may vary significantly, depending on the cost structure and the ability of companies to utilize tax credits. This study, therefore, details the results and discussion on the impacts of the tax reform on the fertilizer industries in Rio Grande do Sul, comparing the current system with the model proposed by the CBS and the IBS.

Current tax system

In the current tax regime, the contributions to the Social Integration Program (PIS) and the Social Security Financing Contribution (COFINS) applicable to fertilizer industries are governed by Law No. 10.925/2004 (Brazil, 2004). Article 1 of this law establishes a zero rate for revenues from the commercialization of fertilizers, soil conditioners, and other inputs for agricultural activities. This measure, in practice, eliminates the need to collect PIS and COFINS on these operations, representing a direct fiscal benefit for the sector.

Regarding the Tax on Industrialized Products (IPI), the taxation of fertilizer industries is determined by the classification of products in the Mercosur Common Nomenclature (NCM), according to the IPI Incidence Table (TIPI), approved by Decree No. 7.212/2010 (Brazil, 2010). The analysis revealed that most products in the sector fall under codes classified as non-taxed (NT) or with a zero rate, which means that the IPI does not constitute a relevant effective cost for the operations of fertilizer industries in the current context.

The taxation of the Tax on Circulation of Goods and Services (ICMS) on agricultural products is substantially influenced by tax benefits nationwide. For fertilizers, Convention ICMS No. 100/1997 (Confaz, 1997), consolidated by Convention ICMS No. 26/2021, and the ICMS Regulation of Rio Grande do Sul (Rio Grande do Sul, 1997) establish the reduction of the tax base in interstate operations. Until 2024, this system resulted in variable effective tax burdens, but from 2025 onwards, the effective tax burden for interstate operations with fertilizers was standardized at 4%, regardless of the destination federative unit.

In internal operations in Rio Grande do Sul, fertilizers are generally subject to the ICMS deferral regime, which means that the tax is not collected upon the exit of the goods from the industry, but rather transferred to a later stage of the production chain. This treatment favors the cash flow of companies, although it does not constitute an exemption. For other agricultural inputs, such as inoculants and adjuvants, internal operations in the state are, as a rule, exempt from ICMS.

In interstate operations with inoculants and adjuvants, a reduction in the calculation base is applied, generally by 60%, resulting in a taxable base of 40%. The interstate tax rate applies to this base, generating a variable effective tax burden, generally ranging between 2.80% and 4.80%, depending on the destination region. This differentiated treatment between fertilizers and other agricultural inputs reflects the complexity and specificity of the tax benefits applied to the sector.

The analysis of the current taxation of the main products in the fertilizer sector reveals that, in general, fertilizers have a zero PIS/COFINS rate and no relevant IPI burden. The ICMS, in turn, is deferred or exempt in domestic operations in Rio Grande do Sul and has a reduced effective tax burden in interstate operations. It was observed that, in the fiscal years 2023 and 2024, the taxation of interstate fertilizers varied due to the progressive reduction of the tax base, stabilizing at 4% from 2025 onwards.

In contrast, products such as inoculants and adjuvants maintain the systematic reduction of the calculation base in interstate operations, with effective tax burdens varying between 2.80% and 4.80%, especially between the North/Northeast and South/Southeast regions. This distinction highlights the granularity of existing tax incentives, which are shaped to meet the particularities of each type of agricultural input and its relevance to agricultural production.

However, the review of tax benefits promoted by Complementary Law No. 224/2025 (Brazil, 2025b) and regulated by Decree No. 12,808/2025 (Brazil, 2025c) and by Normative Instruction RFB No. 2,305/2025 (Brazil, 2025d) resulted in the partial limitation of some federal incentives. Operations with agricultural inputs, previously subject to a zero rate for PIS and COFINS, now have a residual incidence of approximately 10% of the ordinary rates. In the non-cumulative regime, PIS now has an effective rate of 0.165% and COFINS of 0.760%. In the cumulative regime, the effective rates were 0.065% for PIS and 0.300% for COFINS. This alteration, although partial, implies a proportional increase in the tax burden on these operations.

Current Regime Credit

In the current tax system, the tax benefits of PIS, COFINS, and IPI allow fertilizer industries to acquire productive inputs, such as raw materials and packaging, without the incidence of these taxes. Law No. 10.925/2004 (Brazil, 2004) grants a zero rate or non-incidence on the sector’s revenues, which is operationalized by declaring the destination of inputs for production. This system contributes to the reduction of industrial costs, as the outputs of the products are also not effectively taxed, ensuring a more efficient production flow with a lower tax burden.

The utilization of ICMS credits, on the other hand, is more restricted. State legislation allows for the crediting of ICMS levied on inputs directly used in production, even when sales are exempt or deferred, without requiring reversal. However, expenses not directly related to production, such as administrative, commercial, and after-sales costs (commissions, outsourced services), generally do not generate ICMS credit. This means that part of the costs incurred by industries cannot be recovered through taxation, according to the ICMS Regulation of Rio Grande do Sul and ICMS Agreements No. 100/1997 and No. 26/2021 (Rio Grande do Sul, 1997; CONFAZ, 1997; CONFAZ, 2021).

Machado (2004) explains that the non-cumulative nature of the Sales and Services Tax allows for the offsetting of amounts paid in previous stages of the production chain, a mechanism regulated by Complementary Law No. 87/1996. However, the implementation of this crediting regime depends on infra-constitutional regulation, especially regarding the hypotheses for utilizing credits on permanent assets and inputs. This dependence on complementary rules increases the system’s complexity and limits the full utilization of credits by companies, generating challenges in the sector’s tax management.

State Tax Incentives and Economic Development in Rio Grande do Sul

Bonatto and Schreiber (2026) highlight the extra-fiscal function of state tax incentives, which induce economic behaviors and stimulate investments and sustainable practices, especially in industrial sectors with significant environmental impact, such as fertilizers. Programs like FUNDOPEM/RS (Fund for the Operation of Companies of the State of Rio Grande do Sul) are examples of instruments for promoting industrial expansion, crucial for attracting and retaining investments in the state. However, the effectiveness of these incentives is limited by the difficulty of monitoring and measuring results, which requires a reassessment in the context of tax reform.

Tonetto et al. (2025) demonstrate that the efficiency of tax incentives varies across economic sectors, with non-uniform effects, which is particularly relevant for the fertilizer industry. The authors also highlight that these incentives are part of a context of tax wars between states, a practice that tends to be mitigated with the adoption of the destination principle in tax reform. In this scenario, economic stimulus mechanisms tend to migrate from tax instruments to mechanisms of a budgetary nature, altering the dynamics of support for regional development.

Currently, regional development in Rio Grande do Sul is widely driven by fiscal incentives linked to ICMS, which function as tools to attract investments and stimulate economic activity. With the enactment of Constitutional Amendment No. 132/2023 (Brazil, 2023), the Regional Development Fund (FDR) was established, aiming to reduce regional inequalities and finance development projects, gradually replacing the logic of fiscal incentives based on the waiver of tax revenues with a system for allocating budgetary resources.

The Constitutional Amendment (Brazil, 2023) provides that the functioning of the FDR will be detailed by complementary legislation, indicating that its operationalization is still under construction. While the new taxes have already been regulated by Complementary Law No. 214/2025 (Brazil, 2025a), the FDR still presents normative uncertainty. This uncertainty can generate doubts regarding its practical application and its role as a substitute for tax incentives, creating a risk scenario for companies that based their competitiveness on tax benefits and now need to re-evaluate the economic viability of their operations.

Taxation in the new model: CBS and IBS in the fertilizer industries

The tax reform, approved by Constitutional Amendment No. 132/2023 (Brazil, 2023) and regulated by Complementary Law No. 214/2025 (Brazil, 2025a), replaces consumption taxes with a system structured around the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS). This change alters the incidence and collection logic throughout the production chain. Cruz (2025) highlights that the implementation of a value-added tax model represents a structural reorganization of the Brazilian tax system, with significant impacts for sectors that historically operate under differentiated taxation regimes.

The new tax model (Brazil, 2023) adopts the logic of the Value Added Tax (VAT), with non-cumulative incidence and the right to credit along the chain. Oliveira and Silva (2025) state that this model seeks to reduce distortions in the current system, especially those related to the multiplicity of taxes and the existence of differentiated regimes. For the fertilizer industries, this change replaces the current model, based on specific incentives, with a system focused on offsetting taxes paid in previous stages, promoting greater neutrality and transparency.

The expansion of the right to credit is one of the central elements of the reform, according to Cruz (2025). The broad use of credits aims to avoid cumulativeness and provide greater transparency to the tax burden on goods. Expenses that currently do not generate the right to credit will be included in the compensation base in the new model, altering the dynamics of tax calculation for fertilizer industries. This change represents an opportunity for companies to recover more tax costs, but also requires a profound adaptation of their fiscal management processes.

Complementary Law No. 214/2025 (Brazil, 2025a) establishes a 60% reduction in the rates of the CBS and IBS for goods considered essential, including agricultural inputs. For this reduction to be applied, the products must be correctly classified under the Common Mercosur Nomenclature (NCM) codes indicated in the annexes of the reform legislation. In the case of fertilizer industries, the benefit is conditional upon meeting the sector’s regulatory requirements, especially the need for product registration with the Ministry of Agriculture and Livestock.

Typical products of the fertilizer industries, including mineral fertilizers, inoculants, and other agricultural inputs, are expressly listed in the annexes of the tax reform legislation, such as Chapter 31 (Item 2) for fertilizers and Chapter 38.08 (Item 6) for insecticides, fungicides, spreading agents, growth stimulants, and inhibitors. The application of the reduced rate depends on the correct classification of the product under the respective NCM code and compliance with the specific regulatory requirements of the sector. Correct fiscal classification becomes crucial to avoid loss of benefits, disallowance of credits, and penalties.

The rates of the CBS and IBS are not fixed in advance in the legislation, being defined during the transition period by a calibration mechanism to maintain the collection of the replaced taxes. The Ministry of Finance (2024) established criteria for calculating the reference rates, which will be adjusted to recompose previous revenue. For simulation purposes in this study, estimated percentages of 9.3% for the CBS and 18.7% for the IBS were adopted, totaling 28%, on which a 60% reduction was applied for agricultural inputs, resulting in an effective rate of 11.20%.

The comparative simulation between the current ICMS taxation and the estimated one for CBS/IBS, considering the period from 2023 to 2025, revealed significant changes. Under the current regime, domestic operations in Rio Grande do Sul with fertilizers do not generate ICMS collection due to deferral, and inoculants and adjuvants are exempt. In interstate operations, the calculated values reflect reduced effective tax burdens. In 2023, the total ICMS collected was R$ 470,853.35, while the simulated value for CBS/IBS was R$ 2,087,765.06. In 2024, ICMS totaled R$ 359,922.20 and CBS/IBS R$ 1,686,679.52. For 2025, ICMS was R$ 240,966.55 and CBS/IBS R$ 1,266,594.17. These data indicate that, although the values of both taxes decrease over time, the simulated tax burden for the new model is consistently higher than that of ICMS under the current regime.

The complexity of the hypotheses for applying the reduction of rates and the deferral of IBS and CBS in operations with agricultural inputs required a systematization of the rules. The applicable tax treatment varies according to the nature of the acquirer and their classification. For example, operations between taxpayers subject to the regular tax system generally apply deferral, postponing payment. For non-taxpaying rural producers, the treatment may involve deferral or tax incidence with a reduction of rates, depending on the conditions established in the legislation and the subsequent stages of the production chain.

Non-cumulativeness and credit regime in CBS and IBS

In the proposed model, tax calculation follows the logic of non-cumulativeness, allowing for the utilization of credits on the acquisition of inputs, goods, and services, as provided for in articles 47 to 56 of Complementary Law No. 214/2025 (Brazil, 2025a). This utilization is directly linked to the tax incidence of CBS and IBS in the previous stage of the chain, and their tax treatment may vary, including in cases of deferral. The expansion of the credit system in the CBS/IBS model directly impacts companies’ cash flow, as the recovery of credits depends on the tax incidence in the previous stages, which can generate financial mismatches along the production chain.

The analysis of the data from the company under study, which operates under the Presumed Profit tax regime, allowed for the identification of the most relevant expenses and their potential for credit in the CBS and IBS models, considering that, under the current regime, there is no utilization of PIS and COFINS credits. It was found that expenses such as salaries and commissions (predominantly paid to individuals) do not generate credit. However, freight, third-party services, and marketing can generate credits, provided they are contracted from suppliers subject to CBS and IBS. This demonstrates that tax efficiency in the new model is directly related to the choice of suppliers and the nature of expenses, shifting tax planning to the operational field.

The simulation of credit utilization for specific expenses illustrates this dynamic. For freight, with a value of R$ 350,000.00, the current ICMS credit was R$ 26,075.00 (7.45%). In the CBS/IBS model, the simulated credit is R$ 39,200.00 (11.20%), conditioned on the carrier being a taxpayer. For commissions, valued at R$ 1,300,000.00, there is no credit in the current regime or in the new model, as payments to individuals do not generate credit. For marketing, with a value of R$ 300,000.00, there is no current credit, but in the new model, the simulated credit is R$ 33,600.00 (11.20%), if contracted from a legal entity taxpayer.

It is observed that the utilization of credits in the new model is not uniform among the analyzed expenses, being conditioned by the incidence of CBS and IBS in the previous stage of the chain. This means that the right to credit depends not only on the nature of the expense but also on the tax classification of the supplier and the effective taxation of the operation. Although the new model expands the right to credit, its effectiveness may present practical limitations, especially in situations involving suppliers not subject to taxation, such as individuals, impacting the company’s final tax burden.

In the context of the transition to the new tax model, the legislation provides for mechanisms for the preservation and utilization of credit balances accumulated under the previous regime. The operationalization of these credits, including deadlines and criteria for use, is subject to complementary regulation. The continued utilization of credits is, therefore, linked to the provisions that will be established at the infraconstitutional level, which adds an element of uncertainty for companies in managing their tax liabilities and assets.

In summary, the tax reform represents a paradigm shift for the fertilizer industries in Rio Grande do Sul, replacing direct tax incentives with a system of non-cumulativeness and credit expansion. Although the new model offers greater credit potential for various expenses, its effectiveness depends on the companies’ operational structure and the nature of their suppliers. The sector’s competitiveness will be determined by efficient credit chain management and operational reorganization, requiring strategic and operational adaptation of companies to the new tax rules.

4. Conclusion

This study analyzed the potential impacts of the tax reform on tax incentives applicable to the fertilizer industries in Rio Grande do Sul. It was found that the previous tax system was characterized by direct benefits, such as zero PIS/COFINS rate, absence of significant IPI burden, and reductions or deferrals of ICMS in specific operations. However, Constitutional Amendment No. 132/2023 and its regulation promoted a paradigm shift, replacing this logic with a non-cumulative system based on the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS). The simulation performed showed that, even with the provision of reduced rates for agricultural inputs, the simulated tax burden in the new model proved consistently higher than that of ICMS under the current system. It was observed that the expansion of the right to credit, although significant, is not uniform and depends on the nature of the expense and the tax classification of suppliers, shifting tax planning to the operational management of the supply chain.

The main contribution of the work lies in demonstrating that the competitiveness of fertilizer industries in Rio Grande do Sul will depend less on direct tax benefits and more on the ability to reorganize operations and efficient management of the credit chain. However, the study has limitations, such as the use of estimated rates for CBS and IBS, which do not have a definitive normative character, and the analytical simplification that did not consider all the particularities of the destination principle or deferral for the new taxes in the quantitative simulation. Furthermore, the analysis was based on a single case study, which restricts the generalization of the results. For future studies, it is suggested to investigate the impacts of the reform based on definitive rates, the analysis of the complete operationalization of the Regional Development Fund, and the evaluation of the effects on companies with different operational structures and tax regimes, in order to deepen the understanding of the strategic adaptation necessary for the sector.

Bibliographic References

Abraham, M.; Lannes, C.T.B. 2024. Incentivos Fiscais ao Meio Ambiente na Reforma Tributária e o Imposto Seletivo. Revista Direito Tributário Atual v. 57.

Brasil. 2023. Emenda Constitucional n. 132/2023, de 20 de dezembro de 2023. Dispõe sobre Alteração ao Sistema Tributário Nacional. Diário da União, Brasília, 20 dez. 2023. Disponível em: https://www.planalto.gov.br/ccivil_03/constituicao/emendas/emc/emc132.htm. Acesso em: 12 out.2025.

Costa, L. C. P; Oliveria, A. R.J. 2024. A reforma tributária e os novos princípios de Direito Tributário. Revista Contribuciones a Las Ciencias Sociales, São José dos Pinhais, v.17, n.13, p. 01-25, 2024

Sousa, A. F. S; Moura, P.L.A.de L. 2024. Impactos da Reforma Tributária e o fim da guerra fiscal no âmbito do ICMS. Revista Foco, v.17 n.1, e 7121, p.01-17, 2024.

Article originating from the Final Course Work of the Specialization in Tax Management of the MBA USP/Esalq

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