Brazil’s Tax Reform Gets IDB Loans for State Finances and Public Services

The loans fall under the third phase of the Fiscal Management Modernization Program, known as Profisco III, which is being implemented in coordination with Brazil’s federal government.

Brazil's move to a new tax system is getting financial support from the Inter-American Development Bank (IDB), whose Board of Executive Directors has approved loans for São Paulo and Rio Grande do Sul to modernize revenue collection and improve how public money is managed. The financing includes the bank's first loan in Brazil denominated in Brazilian reais, giving São Paulo a local-currency operation to support changes in its fiscal administration. Both states will use the funding to update digital systems, strengthen oversight and prepare public institutions for the country's new value-added tax (VAT) framework, with improvements intended to make tax services easier to use and public spending more effective.

Two states prepare for a major tax shift

The loans fall under the third phase of the Fiscal Management Modernization Program, known as Profisco III, which is being implemented in coordination with Brazil's federal government. The program supports one of the country's most significant fiscal transformations in recent history, requiring states to adapt the institutions, technology and day-to-day processes that underpin tax administration. Digital transformation, artificial intelligence, data analytics and new fiscal management tools will help support that work, connecting the practical demands of introducing a new tax model with the broader need for more reliable public services and better decisions about government resources.

São Paulo secures the IDB's first Brazilian real loan

São Paulo will receive an investment loan of 750 million reais, equivalent to approximately $167 million, to strengthen governance, cybersecurity and transparency across its fiscal administration. The operation covers the management of staff, public assets, procurement and risk, alongside upgrades to the information systems and processes needed for the new VAT framework. Greater integration between systems and wider use of data, including advanced analytics, are expected to give officials a stronger basis for decisions about revenue and expenditure. The loan carries a 24.5-year term, a six-year grace period and an interest rate linked to the Brazilian Interbank Deposit Certificate, or CDI, with local counterpart financing of 75 million reais.

Rio Grande do Sul focuses on digital services and spending oversight

Rio Grande do Sul's $120 million investment loan will support stronger governance, risk management, transparency, digital transformation and sustainable public administration. Tax administration and fiscal litigation will be modernized through data analytics and artificial intelligence, with improvements to the legal management of fiscal matters intended to make processes more efficient and reduce litigation. Funding will support the state's adaptation to the VAT framework and the development of strategic digital solutions, including systems supporting the operation of the IBS Managing Committee, a key institution in Brazil's new tax model. Budgeting, financial management, auditing and public expenditure systems are included in the operation, which has a 25-year term, a three-year grace period and an interest rate based on SOFR. Local counterpart financing totals $12 million.

For taxpayers, the expected benefit is more efficient services for meeting their obligations, reducing the administrative difficulty of dealing with state tax systems. Businesses are expected to gain a more predictable and favourable operating environment, and residents stand to benefit from greater fiscal transparency and public services supported by more efficient, results-oriented spending. Board approval marks a funding milestone for both states, but implementation will begin only after the programs complete the required Brazilian legal and administrative processes.