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input.scss

$red: #f00;

.box {
    color: $red;

}

output.css

.box {
  color: #f00;
}

settings.json

{
  "sass": {
    "compiler": "dart-sass/1.32.12",
    "extensions": {},
    "syntax": "SCSS",
    "outputStyle": "expanded"
  },
  "autoprefixer": false
}