TAX CASHBACK AND TAXPAYING CAPACITY IN THE NEW BRAZILIAN VAT: BETWEEN CLASSIC SELECTIVITY AND PERSONALIZED REFUNDS OF THE IBS AND CBS

Abstract

This article addresses a question that has accompanied me since my earliest encounters with Brazil’s consumption tax reform: to what extent does the cashback system created by Constitutional Amendment N. 132/2023 and detailed in Complementary Law N. 214/2025 give concrete effect to the principle of ability-to-pay in indirect taxation, beyond serving as a targeted relief mechanism for low-income households? I begin from the view that classical doctrine regarded selectivity and non-cumulativity as central tools for mitigating the regressivity of the ICMS and IPI, alongside the prohibition of confiscatory taxation and the notion of a minimum subsistence level. Drawing on leading scholarship, I examine the normative content of the ability-to-pay principle, its implications for consumption taxation, and its connections with the protection of essential living standards. I then describe the constitutional architecture of the new dual VAT (IBS and CBS) and analyze the provisions of Complementary Law N. 214/2025 governing cashback, focusing on individualized refunds for families registered in the CadÚnico and on differentiated rates by category of goods and services. In my view, the existing cashback model represents an initial step toward personalizing consumption taxes, consistent with doctrinal approaches that recognize differentiated applications of the ability-to-pay principle in indirect taxation. At the same time, I identify room for a more ambitious design – one that could rely on fiscal and administrative databases to calibrate effective tax burdens by income bracket, in a manner analogous to the annual adjustment under the income tax. I conclude that the current cashback regime expresses the ability-to-pay principle in a still modest fashion, yet provides both the normative foundation and the technological infrastructure for a future model of expanded, income-linked refunds aligned with overall consumption patterns, provided that feasibility, privacy, and legal certainty are preserved.