Author: Beth Matias and Clara Favilla

Source: Sebrae Brasil - 21/07/2010

São Paulo - The incentives for formalization (reduction of the tax burden and bureaucracy), foreseen in the General Law of Micro and Small Companies, and, more recently, the entry into force of the legal figure of the Individual Entrepreneur are already having a favorable impact on the economy.

The Underground Economy Index released this Wednesday (21st), in São Paulo, by the Brazilian Institute of Economics of the Getulio Vargas Foundation (Ibre / FGV) and by the Brazilian Institute of Competitive Ethics (Etco) presented, in proportional terms, a fall 12% in the last six years.

“These normative advances are changing the face of the Brazilian economy. There are so many incentives for formalization to take place, that within a few years, only those who work on their own and earn very little sporadic income or those linked to illegal activities, such as piracy, will remain in informality ”, said the technical director of Sebrae, Carlos Alberto dos Santos.

In 2009, the underground economy reached R $ 578 billion, which corresponded to 18,4% of the Gross Domestic Product (GDP). In 2003, this economy represented 21% of the GDP at the time, that is, R $ 357 billion. There is, therefore, a long way to go, so that Brazil reaches levels around 10% of GDP, registered by the most developed countries. "The important thing is that the process of formalizing the Brazilian economy has accelerated and is irreversible", emphasizes the director.

The Underground Economy Index was prepared based on data from the Monthly Employment Survey (PME) and the National Household Sample Survey (Pnad), both from the Brazilian Institute of Geography and Statistics (IBGE).

It is considered underground economy the production of goods and services deliberately not reported to governments with the objective of evading taxes, evading social security contributions, evading compliance with labor laws and regulations and avoiding costs resulting from complying with applicable rules in the activity.

Another variable in favor of the increase in the formalization of the economy was the increase in inspection. In addition, economic growth and globalization have forced companies to become more competitive in the domestic and foreign markets. “The increase in the volume of credit made available to workers created pressure to formalize labor relations,” explained economist Fernando de Holanda Barbosa Filho, a researcher at Ibre / FGV and responsible for the study.

“In relative terms, the drop was more significant than in absolute terms. This is because, in recent years, Brazilian GDP has doubled in size, ”he said. In 2008 the average percentage of workers without a formal contract was 22,8% and the income of these workers represented 14,9% of GDP.

Despite the fall, the problem of the underground economy is still serious. “We are talking about almost R $ 600 billion that are outside the formal Brazilian economy. To give you an idea of ​​the seriousness of this problem, just remember that Brazil's underground economy surpasses the entire Argentine economy ”, points out André Franco Montoro Filho, executive director of Etco.