Parallel Brazil


Source: Folha de S. Paulo

However, Brazilian numbers are particularly devastating.
when it appears that, in the scope of food retailing, 94% of jobs are
informal sectors and that, in civil construction, the proportion of informal jobs is
70%. Worse, in the last decade, nine out of ten jobs generated in the country had
its origin in the informal economy. In this environment, a study that is being
developed by McKinsey consultancy traces a wide profile of what happens in the
behind the scenes of informality.

In this true parallel Brazil created by illegality, there are few
sectors that escape unfair competition. Retail taxes are evaded
sales. Informal food processors tend to ignore patterns of
phytosanitary quality. Builders, also informal, do not register
employees and hours worked. Record companies infringe copyright. The sector
informal cigarette business, with 51 billion units sold illegally (a
third of the market), leads smuggling and reaches 22% of its revenue with
illegal competition practices. With greater or lesser intensity, illegality
has been growing continuously.

The common link in the universe of illegality is the magnitude of the tax burden.
There are other impasses, like the bureaucracy, the slowness of the Judiciary and the
inflexibility of labor laws. But what nourishes and gives oxygen to that
Parallel Brazil is the competitive differential of the evaded taxes.

In general, developing countries have a tax burden corresponding to 25% of the
GDP. In developed countries, there are usually five more percentage points in
taxes / GDP ratio. Among us, only in the 90's did it jump from 14% to
about 35% of GDP, when countries like Japan, Singapore, Taiwan and South Korea
walked the other way. Instead of high taxes, they sought to consolidate a
system that combines relatively low taxes, flexible regulation and
and a strong judicial system for enforcing laws. They reaped what we
we should be reaping: low informality and high productivity. Situation
analogous thing happened in the past with today developed countries. It is necessary that all
realize that the drama of the high tax burden has consequences that go
far beyond increasing tax evasion. In addition to trapping the economy in
straitjacket of non-growth, corner society with the plague of
corruption, encourages the culture of illegal practices as a competitive differential
and, which is equally harmful, it hits hard those who believe in
healthy business practices. It is a nuance that also needs to be
best evaluated. The combined action of high interest rates, growing bureaucracy,
Delays in justice are increasingly threatening for the entrepreneur.

Brazilian development, despite the strong presence of the State, always
had its engine in the private sector. Since the baron of Mauá, the figure of
entrepreneur is closely associated with the production and creation of wealth, in short,
to progress, which is the shortest path to job creation and solution
of social problems. The entrepreneur today is a threatened character and
without stimuli. The formidable mesh of restrictive legislation and competition
unfairly close the windows of opportunities that should open after a
decade of currency stabilization.

Recently, President Luiz Inácio Lula da Silva went public to admit
that the government erred in the modifications made to Cofins. It was an attitude
brave, no doubt, but it still reveals the impasses of
present. Tax reform has been under discussion for a decade. The moment
takes a timid initial step to get it off the paper, it turns out that he is
wrong. The conclusion is that the time has come for real solutions. In addition to
problems, the authorities need to effectively strive to overcome them in
harmony with business and society. As a form of cooperation, the Institute
Brazilian Competition Ethics Committee has been deepening studies in partnership with
McKinsey, which will be released in the coming weeks, to x-ray causes and
profound impacts of parallel Brazil in legal and formal Brazil. It's a way
optimistic about betting on changes.

The challenge is difficult to overcome. Hard but not impossible. Basically, success
the fight against parallel Brazil and the revitalization of legal and formal Brazil is very
less a consequence of the complexity of the problem than a question of
articulation, will and competence.

Emerson Capaz, 49, is president of the Brazilian Institute of
Competition Ethics.