Despite the efforts of the tax authorities, the illegal cigarette market has been little reduced


Author: Gustavo Paul

Source: O Globo, 22/02/2009

BRASILIA. Despite the measures adopted by the Federal Revenue Service since 2007 to contain tax evasion in the cigarette sector, the illicit market scenario in the country has hardly changed.

According to data from the sector, considering the cigarettes consumed in the country (manufactured locally or imported), the illegal presence dropped from 29% in 2007 to just 28% in 2008.

Advances in the tax area have not been accompanied by effective measures to curb smuggling, mainly from Paraguay.
In addition to the damage to the purse, the situation still raises the risk to the health of smokers.

According to the Health Surveillance, components such as organochlorine pesticides - which cause an activating effect on cancer cells and have been banned from agriculture in Brazil and other countries for decades - have even been found in smuggled cigarettes and even manure. According to the manufacturers, contraband cigarettes can be found in about 40% of retailers selling the product.

Stimulating Paraguay's economy would prevent smuggling

The president of the Etco Institute, André Franco Montoro Filho, says that the tax authorities' work was important, but that the entry of illegal cigarettes into the country has grown: - With organized crime it is like that, you close one door and they open others. With the ban on illegal production internally, the diversion increased.

The main source of illegal cigarettes, according to information from the manufacturers, is Paraguay.
With an annual production of around 40 billion cigarettes - about 13 times its domestic consumption - it is directed almost entirely to the countries of South America, mainly Brazil, which would receive 17 billion units annually.

The 2004 Piracy Report of the Chamber of Deputies' CPI already pointed out that in Brazil, smuggling and embezzlement currently have four major entry points on the border with Paraguay. The main one is between the cities of Ponta Porã, in Mato Grosso do Sul, and Pedro Juan Caballero, in Paraguay, a vulnerable dry border of 600 kilometers in length.

In addition to the dry borders, there are still more than a thousand kilometers of banks of rivers and lakes in the area of ​​Ciudad del Este and Itaipu, with more than 200 illegal ports that are also used to enable the entry of these products into Brazil.

For Montoro, it is important to further increase control of this dry border and look for ways to stimulate the Paraguayan economy, to reduce the temptation to smuggle. Another factor that drives the diversion is the price of the product in the country. The smuggled cigarette wallet costs the equivalent of R $ 0,07 to R $ 0,10 in Paraguay, and the packet is sold here for one real, on average, well below the price of legal brands, which pay taxes, around of R $ 2,25. The tax burden on cigarettes, because it is harmful to health, corresponds to 65% of the final price.
As a result, the Brazilian illegal cigarette market handled 2008 billion units in 37, equivalent to approximately R $ 2,1 billion.

It's another drain of tax evasion.

The government failed to collect approximately R $ 1,7 billion in taxes.

Internally, the IRS has been trying since 2007 to combat tax evasion. In April 2008, it implemented the Cigarette Production Control and Tracking System - Scorpios - in all manufacturers established in the country and made the issuance of electronic invoices mandatory for all producers and distributors.

Annual loss of revenue decreased by R $ 185 million

In addition, it implemented new stamps for the product, containing several security items, which allow individual tracking of portfolios produced in the national territory.

In 2007, the cigarette counting system had been implemented in factories in the country.

- As a consequence of these new controls and actions with the Judiciary, the participation of the national illegal market was reduced from 17% in 2007 to around 13% in 2008. This represents something around 250 million less cigarettes. in the market without due payment of taxes - says Henrique Freitas, undersecretary of Revenue Inspection.

According to him, the result was a reduction of R $ 185 million in the annual loss caused by national manufacturers, only in federal taxes. According to IRS data, tax evasion dropped from R $ 695 million to R $ 510 million. Interestingly, the two largest companies in the sector in the country, Souza Cruz and Philip Morris, hold approximately 70% of the market, but pay 99% of the sector's taxes.

In 2008, three national factories were closed and in 2007, two others, which did not pay taxes and operated under judicial decisions.
Currently, of the 11 manufacturers in the country, six operate under injunctions.