Municipalities in the IBS era: autonomy, governance and administrative capacity after Complementary Law No. 227/2026

Abstract

Brazil's consumption tax reform has transformed the institutional position of municipalities by progressively replacing the municipal Service Tax with the Goods and Services Tax (IBS) and establishing a shared intergovernmental administrative framework. This study examines whether the operational centralization consolidated by Complementary Law No. 227/2026 strengthens cooperative federalism or undermines municipal autonomy, with particular attention to disparities in local administrative capacity. The research adopts a qualitative, exploratory and explanatory legal-institutional approach based on documentary analysis of the Federal Constitution, Constitutional Amendment No. 132/2023, and Complementary Laws Nos. 214/2025 and 227/2026, combined with a literature review on fiscal federalism, municipal autonomy and state capacities. The findings indicate that the new framework does not eliminate municipal autonomy but redistributes its dimensions: it reduces individual regulatory and operational authority, preserves municipal power to set the local IBS rate and maintains relevant inspection and collection functions while transferring selected activities to shared intergovernmental infrastructure. The study concludes that the arrangement may strengthen cooperative federalism when technological standardization expands municipal capacities, particularly among less structured local governments. Its legitimacy, however, depends on automatic revenue distribution, transparency, auditability, direct access to administrative systems and continuous training of local tax administrations.