Author: Bernardino Nogueira

Source: Published by Newsroom on 29/07/2010

ETCO - Brazilian Institute of Competition Ethics, hired FGV - Fundação Getúlio Vargas, to carry out a study on the participation of underground activities in the Brazilian GDP. The study revealed that the informal economy, despite decreasing in percentage - in 2003 R $ 357,4 billion, corresponding to 21% of GDP and in 2009 R $ 578,4 billion, equivalent to 18,4% - its amount it also represented a figure that is close to all the wealth generated by Argentina in 2009.

The study would also reveal that in OECD countries, (Organization for Economic Cooperation and Development) informality represents 10% of GDP, while in emerging countries the average is close to 30%.

It is believed that the reduction in the percentage is motivated by the increase in the supply of credit; companies and workers are giving preference to bear the costs of formality that allows them access to finance.

FGV researcher Ibre (Brazilian Institute of Economics), Fernando de Holanda Barbosa Filho, responsible for the study, concludes: “In general, a major solution would be to reduce the tax burden and bureaucracy”.

Much has been said about how much it represents as a support for economic and employment stability, and also for the contribution to a better distribution of the country's wealth, the maintenance of small and medium-sized companies, however what is verified in reality is precisely the opposite. Annually, thousands of small businesses across the country shut down, and those that start mostly in the next two years without the least chance of success also close.

Of course, not all of these devoted entrepreneurs, full of hopes, dreams and goodwill, fail through incompetence. No, many fail because they are honest, by paying a tax that approaches 40% of their income and cannot compete with those who benefit from all sorts of incentives and other stratagems, such as disguised wholesalers who circumvent the legislation benefiting from rates far below those imposed on small and medium-sized enterprises.

In addition to the aforementioned difficulties, small and medium-sized companies suffer from other unfair competition from those who practice the informal economy, which are exempt from all types of taxation, accounting for this share of 18,4% of Brazilian GDP, as mentioned above, in addition to charges resulting from the need for legal and accounting assistance, each day more necessary and costly to give correct compliance with what entails the tangle of increasingly complicated laws and different interpretations, but which penalize without mercy or mercy with fines which can exceed 100% plus interest and correction, those that for reasons or lapse do not comply with them.

Everything would be facilitated if taxation were exercised by the process called substitute tax, with equal rates and without exceptions. But what is the destination for the thousands of employees who exercise control? Meanwhile, small and medium-sized companies remain stunted, having to compete with the inequalities in tax benefits granted by the State and Municipality to large companies, pseudo wholesalers and the large legion of those who live in informality, which represent 18,4% of GDP national.

About the Author

Bernardino Nogueira

Member of the Alagoas Academy of Culture