In January 2016, the Federal Executive Branch published Decree No. 8,656, of January 29, 2016, which amended articles 50 and 70 of Decree No. 7,555/11, increasing the Tax on Industrialized Products – IPI on Cigarettes.

This article seeks to analyze whether the taxation on cigarettes – as instituted and applied in Brazil – meets its raison d'être, that is, Extrafiscality ("excise tax"), understood as a taxation technique whose function is not to collect and generate revenue for the State , but rather primarily to encourage certain behaviors of rational agents.

Even so, merely fulfilling the extrafiscal function does not make the tax shielded from questions about its constitutionality, because even extrafiscal can be disproportionate, and even if it achieves certain tax policy objectives, the means to do so could be abusive, and, therefore, illegitimate and subject to rejection by the judiciary. However, the abuse can be even more serious when not even the extrafiscal function is intended by the government, which disguises the tax for this purpose only to achieve other objectives, that is, to generate revenue for the public coffers.

Considering that the Law creates powerful incentives in the decision-making of individuals and, therefore, can lead to serious consequences, we will also analyze the possible effects that this increase in the tax will have on the Brazilian economic system.