Current Regime and Impacts of Tax Reform

Tax regime for the recycling chain before the Supreme Court ruling.

Articles 47¹ and 48² of Law No. 11,196/2005 structured a neutrality regime for the recycling chain. Article 47 prohibited the crediting of PIS/Pasep and COFINS on the acquisition of waste, while Article 48 suspended the incidence of these contributions on sales to legal entities taxed under the actual profit regime. Thus, the purchaser did not claim credit and the seller did not pay taxes on the output, due to the suspension provided for in Article 48, maintaining tax balance in the chain.

Supreme Court decision on Case 304 and its effects on PIS and COFINS.

This model was altered in June 2021, when the Supreme Federal Court, in the judgment of RE 607.109/PR (Theme 304), declared both provisions unconstitutional. The prohibition on credit was removed due to violation of non-cumulativeness and environmental protection, and the suspension was removed as a consequence of this decision. As a result, credit on acquisitions was allowed, but PIS/COFINS was also required in the taxation of sales, generating a significant burden, especially for cooperatives, waste pickers, and small operators.

Modulation of effects and practical impact for companies.

In March 2026, when judging the motions for clarification, the Supreme Federal Court (STF) modulated the effects of the decision, setting its effectiveness from March 11, 2026. Actions filed up to June 15, 2021, were excepted, maintaining their own effects. Furthermore, the retroactive collection of PIS/COFINS on operations prior to the time frame was ruled out when the claim arises from the invalidation of article 48. In practice, companies began acquiring the residues with PIS and COFINS taxation from March 11, 2026, and could claim credits for the corresponding amounts.

Bill No. 1,800/2021 and the new tax system

In this scenario, Bill No. 1,800/2021, approved by the Federal Senate and sent for presidential sanction, reconfigures articles 47 and 48 of Law No. 11,196/2005. The new article 47 authorizes the crediting of PIS/Pasep and COFINS on the acquisition of waste by legal entities, under the real profit regime, that use it as an input, provided that it is acquired and paid for to companies established in the country. The new article 48, in turn, exempts these contributions on sales and excludes such revenues from the tax base. The model therefore re-establishes neutrality: there is credit on input and tax relief on output.

Complementary Law No. 229/2026 and enabling the new regime.

The approval of the bill depended on compliance with the revenue compensation requirements stipulated in Articles 14 and 14-A of Supplementary Law No. 101/2000 and Article 29, I, of Law No. 15,321/2025. Supplementary Law No. 229/2026, published on March 31, 2026, removed these restrictions on measures involving the recycling sector, thus removing the main legal obstacle to the entry into force of the new provisions.

The new system should take effect upon publication, which should occur in the coming days, and be valid for the year 2026.

Impacts of tax reform: CBS and IBS on recycling

Starting in 2027, with the entry into force of the Tax Reform (LC 214/25), which will extinguish PIS/COFINS and replace it with CBS, these solid waste acquisition operations will generate a presumed credit of 7%, according to article 170.3. Starting in 2029, with the gradual replacement of ICMS by IBS, they will also generate presumed IBS credits of 1.3% in 2029 up to 13% in 2033.

Furthermore, paragraph 3 of article 170 excludes certain materials from the presumed credit, such as copper scrap, tires, electronic and electrical products, batteries and accumulators, which are currently covered by the existing regime4.

Perspectives and challenges of taxing the recycling chain.

In summary, Bill No. 1,800/2021 restores the tax balance of the recycling chain, with immediate effects from its publication, enabled by Complementary Law No. 229/2026. From 2027 onwards, however, the new system introduces a different treatment for these operations, which requires continuous monitoring of the regulations and the impacts of the tax reform on the sector.

Article written by: Ricardo Alegransi, João Rezende, Lucas Soares and Henrique Melo.