Interview: André Montoro - President of Instituto Etco (Gazeta Online)

By ETCO

Author: Abdo Filho

Source: Gazeta Online, 21/06/2009

In the crisis, the easy way and no return

At the head of one of the most respected institutions in Brazil, the Brazilian Institute of Ethics in Competition (Etco), André Montoro guarantees: “what at first glance seems like a solution to cash problems creates a huge problem, which can put at risk the business sustainability ”. In an interview for A GAZETA, Montoro states that anyone who opts for informality can go on a short and no return path.

What are we talking about when it comes to informality?


We are talking about all activities that are outside official records. From people who do not fulfill their obligations, whether they are labor, tax, smuggling, this set of actions aimed at tax and labor evasion.

Why do companies choose this path?


First, it is expensive to maintain a company. These are taxes, labor contributions, so there is a cost associated with fulfilling obligations. It is a cost that is socially justified, but from an individual point of view it may seem interesting, in the short term, not to fulfill these obligations. In times of crisis this feeling increases.

Do people depend on a crisis to enter informality or is it just an extra incentive?


The crisis is an added incentive. Informality, also known as the underground economy, is large in Brazil, we estimate between 20% and 30% of GDP, is caused mainly by the high tax burden, especially in some sectors. Tax evasion, therefore, ends up representing an advantage, in the short term, for those who transgress.

Which sectors suffer most from the high tax burden and, consequently, from informality?


Drinks, cigarettes, fuels and those related to technology. The latter suffers a lot from the attempt to lower costs and piracy. Drinks and cigarettes suffer a lot from smuggling and fuels from counterfeiting.

Is the Brazilian conniving with this type of practice?


It is typical of underdeveloped countries. In Europe and the United States, culturally, there is no such phenomenon. Sometimes we see respectful people, like doctors, having the price list for the consultation with a receipt or without a receipt. It is something that does not shock us socially. In other countries, people would feel bad about being seen by this doctor. That is how the European and the average American think.

What can the government do to curb?


Studies show that the most important cause for entrepreneurs to be opting for informality is the high tax burden. Reducing this load would help. Another point is the amount of bureaucracy. It is difficult to fulfill obligations in Brazil. Another issue is what we call the perception of corruption. Many people ask themselves: “Why am I going to give money to this government? You don't know how to use it. Everything goes to corruption ”. People don't trust rulers.

How much does society suffer from informality?


First the increase in tax that each person pays, those who pay, of course. Harm to companies that fulfill their obligations, but the most important thing is that an environment is created that is unfavorable to productive investments. It creates a certain mentality that smartness, tax evasion and a series of devices for tax evasion are the path to growth and development. Something that the history of mankind shows is absolutely antagonistic. In order to grow in a sustainable way, it is necessary to have a business environment in which people fulfill their obligations. Who wants to earn money to invest more, work more, make technological innovations, improve their management, educate the workforce. These are the right paths for progress.