Brazil's federal government has included the selective tax, popularly known as the "sin tax", in the 2027 annual budget bill sent to Congress on Monday (Aug. 31). The levy will apply to cigarettes, alcoholic beverages and soft drinks, among other products, and the economic team expects it to raise R$ 41.9 billion next year, according to news outlet G1.

The list of targets goes beyond the health-related trio. It also covers vehicles taxed according to their pollution level, mineral extraction, lotteries, betting and fantasy sports. According to the Finance Ministry, the tax burden on these products will be kept unchanged during a transition period with no set end date, and only later raised "for its regulatory effect of reducing the consumption of products that are harmful to health and the environment". The tax still needs regulation approved by Congress, and the government has not sent that bill yet. Rates and timeline remain open.

The health costs behind the estimate

The figures gathered by the government point to health costs far above the expected revenue. A survey by Fiocruz, Brazil's leading public health research foundation, cited by the Health Ministry, found that alcohol consumption cost R$ 18.8 billion in 2019, the most recent figure available: R$ 1.1 billion in direct federal spending on hospitalizations and outpatient procedures in the SUS, the country's public health system, and R$ 17.7 billion in productivity losses from premature deaths and sick leave. For smoking, the ministry puts the indirect cost at R$ 86.3 billion a year and total spending at R$ 153.5 billion, equal to 1.6% of GDP, against roughly R$ 8 billion collected yearly from cigarette sales. For ultra-processed drinks such as soft drinks, sports drinks and powdered juice mixes, the estimated annual cost to the SUS is nearly R$ 3 billion.

The 2023 tax reform and industry pushback

The selective tax is one of three levies created by the consumption tax reform approved by Congress in 2023, alongside the federal CBS and the state and municipal IBS. The CBS, which replaces PIS and Cofins and part of the IPI, is expected to raise R$ 636 billion in 2027. According to InfoMoney, the bill containing the sin tax also projects a primary surplus of R$ 18.6 billion next year, which would be the first positive federal result in five years. A Tax Foundation survey cited by G1 indicates that total consumption taxes in Brazil will reach about 28% in 2033 once the new system is fully in place, above the 19.4% average of OECD countries.

Domestic producers reject the plan. Industry groups say these products are already heavily taxed in Brazil and argue that higher levies would squeeze profit margins, with likely pass-through to prices, layoffs and a boost to the illicit market.

For consumers, nothing changes at the checkout for now. The tax only takes effect if Congress approves the regulation, which has not yet been sent, and the government itself promises to keep the current burden during the transition, with no defined end date. Those who want to follow the issue can track the regulation bill in Congress; and for anyone considering cutting back on cigarettes, alcohol or soft drinks, the Health Ministry's cost figures show the scale of the health risks attached to these products, whatever happens to the tax.