Against the slums of companies
Source: NoMinimo, 03/02/2005
By Jorge Félix
This year will not be the same as the one that passed. All beer consumed in the country, since January 21, is being duly taxed. The measure may taste bitter to some, but the installation of flow meters in the breweries, connected online with the IRS, is a great victory against tax evasion. The idea came from the Brazilian Institute of Ethical Competition, ETCO, which brings together 15 of the largest tax-paying companies in the country - such as Ambev, Coca-cola, Pepsi-Cola, Souza Cruz, Ipiranga, Shell and Petrobrás Distribuidora (BR). Its board represents R $ 160 billion in revenue per year, 28% of national ICMS, 35% of IPI or, simply, 11% of GDP.
The main objective of ETCO is to prevent what has already been called "business slums". The institute's first step was to commission a survey from McKensey to map tax evasion across Brazil. It was then discovered that the informal economy reached 50% of the size of the economy recorded in cash books. All ETCO data and ideas are passed on to the federal government, which, at first, looked like a landscape for the creation of the institute, but then did what it does best: created a council to deal with the matter. And he started paying more attention to the numbers that come out of a small office in a building in the neighborhood of Itaim, in São Paulo. On the sixth floor, works the president of ETCO, ex-businessman and former deputy Emerson Kapaz.
In this interview with NoMínimo, Kapaz alerts the government to yet another battle that worries ETCO: if, by March 31, Brazil does not present concrete measures against the "slumming of companies", it may lose advantages in trade with the United States .
Doesn't the need to create an institute to defend honesty in competition between companies sound absurd?
In fact, it may sound strange to create an institute to defend competitive ethics, which should be an obligation. But many companies in various sectors came to the conclusion that this problem was getting worse and reaching dimensions unimaginable in Brazil. Tax evasion robs the market of serious companies and creates an inability to compete fairly, pay taxes and register employees. The traditional entities of the entrepreneurs did not assume this defense because they were also split. A good part of the companies associated with these entities were already on the side of informality, many in the middle of the field between paying and not paying, bravely resisting the attacks of the Federal Revenue. That is, within the corporate entities, a movement like this would not arise. Then, in early 2003, some companies decided to set up ETCO.
And what is the balance of these two years?
The biggest of all of our victories was putting the subject on the media and companies' agenda. We managed to organize the debate about unfair competition. We started to give the numbers, to be a reference of data on the fall in productivity, how much the economy loses, especially with the research we ordered from McKinsey. And we have undoubtedly become interlocutors for the state and federal government.
Is the government committed to fighting unfair competition?
Over these two years, we felt that, at first, the government looked like a landscape. The government looked at it like this, said it was very important, but, after all, it was collecting 36% of GDP and, so, it slightly despised our concerns. We then started to show numbers of declining productivity, such as those revealed in the McKinsey survey: the informal economy is half the formal economy and, as it grows faster, it overturns the overall productivity of the economy. This means that the informal company took full advantage of this recent growth resumption in Brazil. In other words, they are companies that do not distribute income to the entire economy or generate sustainable growth. The result is that the country grows one year and the next year it falls. It does not maintain growth in the medium and long term. These numbers started to scare the government.
Does this reality also affect the investment capacity of companies?
Sure. Really productive capital takes a long time to come back because serious companies lack oxygen. The numbers show that productive investment in Brazil is very low, far below what would be needed. This caused the government to step out of its position as a landscape, change to a position of concern and even decide, after great pressure, to create a national council to combat piracy, now in December.
Piracy can result in the loss of some privileges that Brazil has in trade with the United States. What is the assessment of government action to prevent this?
This is one of the great challenges of the government. Brazil is at risk of leaving the United States General System of Preferences. This would mean a loss of two to two and a half billion dollars per year in exports, as we will no longer have a zero rate in the United States for a series of products that today enjoy this commercial advantage. Until March 31, there will be a trial, no further postponement. There is a problem with patents, problems with counterfeiting and smuggling. American companies that invest here do not, in fact, feel a commitment from the Brazilian government in this regard. These companies put pressure on the American government and this, in turn, put pressure on the Brazilian government:? You are having priority to export to us, but do nothing to prevent unfair competition from our companies ?.
And the Brazilian government?
I would say that today there is an evolutionary moment in relation to unfair competition. He is very worried now - even after Provisional Measure 232 (which readjusted the income tax and increased the calculation base for Social Contribution on Net Income from 32% to 40%). That measure was a shot in the foot of the government. And the government is going to have to go back and will have to demonstrate to the society that it will increase the collection with more combating tax evasion and not with the increase of taxes.
This practice of a certain complacency with tax evasion has contributed to this? Slumming of companies? what do you talk about so much?
No doubt. In fact, continuing the McKinsey study, ETCO will deepen the theme of? Slums? of companies. They are companies that start by not registering an employee here, evading a tax there, and think that this way they will better guarantee their survival, but end up entering the world of illegality or in the? Favelão ?. After they fall for it, they can't get back, they enter a system of companies that live in the "marginality". They can't even get into Refis (the government's program for refinancing tax debts) and it turns into a snowball. But, in a universe of 16 million companies, there are 11 million who today live that way. We are going to do a study to find out what leads them to this process, why they can't get back to formality and we need to do it to help them get back to legality. With the study, we will give clues to the government on how to prevent small and medium-sized companies in the country from living this way.
Does this situation encourage corruption?
Ah, yes, informality generates even more bribes, irregular financing of election campaigns, corruption, and feeds a whole parallel state that finances itself in this irregularity.
Some say that these companies already have a bench in Congress.
Has. The illegality bench, in my opinion, has great chances of being bigger than the legality bench. As there is no public campaign financing and companies do not want to expose themselves by financing a politician, the money comes from cash 2. It is obvious that it comes from a cash generation without tax commitments, without grade. The so-called "outside". The Piracy CPI was even an exception, an excellent job, with a report that will help the IRS a lot. But in committees there is great difficulty in approving certain projects.
Returning to the question of the United States: is only the performance of a council sufficient to avoid the problems predicted for after March 31?
The government mobilized seven ministries, the Federal Police, the Federal Revenue Service, six members of civil society. So, created…
… an advice. This government has already demonstrated that it is good to create a council ...
But this government has a difference: the six members of civil society are not going to figure there, no. At the first meeting, we made this very clear. If it is to waste time, postpone, not resolve, we run the risk of going public and saying this and leaving. Which will be very bad for the government. This is the first council with representatives of civil society conducting direct labor surveillance. The others are intra-government councils. The six civil society representatives have 60 class entities out there pressuring us, formalized at the National Forum to Combat Illegality.
Efficient as it is, shouldn't the IRS already have this data, this information that ETCO is gathering?
Despite the work it is doing, the IRS does not have the conditions to move at the speed that society would like. An example is the flow meters for beer. ETCO already knew it was a viable solution, put it on the agenda, talked to state governments, spoke to the federal government, the IRS contacted the Treasury Department and designed the legal mechanism. That would not have come out had it not been for this articulation. This affinity did not exist between an institution representing the paying companies and the government. It is different from the government talking to the CNI, for example. We have a focus. We deliver solutions to the authorities. We don't just want more inspection, we want more efficiency, better distribute the tax burden. We are not interested in the government continuing to collect 40% of GDP. We want him to raise 32%, but from many more payers. So, the Revenue does not have this agility.
Do you mean that, at this carnival, we will already feel the difference in revenue in the beer sector?
Without a doubt, at the end of the year we will be able to measure and compare the collection. As of January, all factories had to install the meter online with the IRS. That was a great victory. Another novelty is that we have just signed an agreement with the Getúlio Vargas Foundation to create software that will be delivered by ETCO to the Federal Revenue, at no cost to the government, to map the implications that the beer flow meter will have in the making of the entire network of raw material suppliers for the sector. So, when you see that the company bought so many thousand hectoliters of beer and entered the software with this information, you will know how much that industry would have to buy from raw material - glass bottle, pet, cardboard, barley, alcohol and so on. . The consequence of installing the meter in the production chain will be enormous. We are going to make this software.
Could other products have something similar?
This year we will have two new features: the same soda meter, which will be installed until May, and the cigarette counter, until October. Maybe it's a stamp, something more rigid to measure production. In the fuel sector, we are feeling and will feel even more the effect of the reduction in the ICMS tax on alcohol here in São Paulo. Other governments are being able to verify that when a tax is reduced, there is an immediate increase in revenue. The ICMS dropped from 25% to 12% and the government increased its collection by 8% in 2004.
Meanwhile, does the State of Rio run in another hand?
Rio has problems. Some fuel distributors that won the special regime, given by the governor Rosinha Garotinho, do not pay ICMS when they withdraw the product from the refinery and sell it in São Paulo without paying the tax. There were conversations between governments to curb because there were distributors cheating heavily. In fact, from the states, we had excellent results in Pernambuco, Bahia, São Paulo, but we have difficulties with the government of Rio. There is no communication channel as in other state governments.
What other sectors are being targeted by ETCO?
This year, the pharmaceutical industry will also do a study similar to McKinsey. ETCO is giving know-how along with McKinsey. Three, four months from now, we will have a complete study of informality in the pharmaceutical sector. Another sector that will also carry out such a study is that of footwear. The 30 largest shoe companies in the country have called us and will do it with another consultancy. They will map the evasion, counterfeiting and export capacity that is not being used. Several sectors are beginning to mobilize.
Are there conditions for our Federal Police, which has made a great effort to combat all of this, with the current staff and investments?
It is surprising that the Federal Police did the work it did in 2004 with the same number of people and scarce structural resources. But it is impressive to see that the change of delegate Paulo Lacerda, under the coordination of the Minister of Justice, Márcio Thomaz Bastos, gave the PF another type of work. There were two to three operations a week to dismantle organized crime, smuggling, piracy, even the action of some judges. What we have in mind is to give all the political support necessary to increase staff, equipment, personnel, budgetary resources. In my opinion, spending on the PF and the Revenue, with trained personnel and equipment, is not a cost, it is an investment. The return comes in revenue for the government. When you arrest a gang, this has repercussions in tax collection. The government should think of these areas as an investment.
Are these sectors so hit by piracy, like the recording industry, in ETCO?
They are in the Forum. The Brazilian Software Association takes care of everything in its sector, in the image and disk industry as well. We imagine that the union will take place through the Forum, which already has 61 class entities. These sectors are linked to ETCO. We are open to new members, but there are sectors that are a power on their own.
You have been working in the business community for a long time and, therefore, many relationships. This performance at ETCO gave him access to a company in full? Slum? who surprised you because you were an acquaintance or because you had or have a respectable image?
There are a lot. It is not one. There were really big surprises. I am not going to give names because you imagine that this happens in micro and small, but it happens in micro, small, medium and large. There is no longer a distinction in size. Companies that have a volume that is not small and you:? Think how it can make box 2 ?? There is a fuel company that, in one month, starts to buy more than BR Distribuidora and drops to zero in the other month.
How do you live with the task of inspecting the entrepreneurs themselves?
Coexistence changed. (Laughing) The funniest thing is to arrive at the conversations of businessmen and friends and the subject will never again be evasion, piracy. I became almost an enemy. ? Look, is Emerson there ?, they talk jokingly, but I know that in the joke there is a side of truth. It's no joke. Today, it is abnormal to pay taxes, it is even considered stupid or naive by the business community. The businessman may even think that he is winning when he withholds tax, but we have to show that the government goes after this money by increasing the taxation of electricity, telecommunications, gas, the so-called administered tariffs. The government has to raise money and the cost of operating that company that evades it is higher than any other similar company in the world. There is built-in tax evasion.
And there is still tax violence.
No doubt. We think we are rascals, but now everyone is falling for it. The entrepreneur can even? Slum? your company, but will not be able to get rid of the? slum tax ?. If the government cannot afford to spend on sanitation, health, education, it will end up increasing poverty and violence. If we open the black box of the Budget, we will see how is the quality of government spending.
Did you ever talk to a tax evader, discovered by the ETCO?
Many. And they say they will reassess the performance. The most important thing for us is that they start to notice and increase their indignation. They say:? Did you want me to close? If I pay everything, I close.? Here comes the lack of financing, high interest rates. For some, the company either pays taxes or pays employees. It makes sense, in some way, because the government left with a lot of fiscal fury to meet surplus targets. What should be done was to cut spending.
What is the image that entrepreneurs have of ETCO?
At first, the image was "ah, it is a business to help the government raise money". In a second moment, it became the perception that it is a job to guarantee the survival of companies. Today, there are 15 companies in the ETCO, with revenues of almost 160 billion reais or 11% of GDP. If you analyze the collection, it is almost 28% of Brazil's ICMS and 35% of the country's IPI. ETCO's representative strength comes simply from the largest companies in the sectors that collect the most taxes: beer, soda, fuel and tobacco.
There are companies wanting to enter ETCO, like Schincariol. Does ETCO have a black ball?
It is excellent news that another beer company, which had problems with the tax authorities, wants to enter the institute. It shows a change in mentality. Philipp Morris also wants to join.
But can it happen from a? Slum? wanting to enter the ETCO to bathe in the Jordan River.
Sure. But that is why we have a strict status. An internal charter for the entry of new members was created. We created the figure of the volunteer employee. For example, Votorantin, which is a concrete demand. The company asked to enter ETCO. It does not belong to the four priority sectors of ETCO. She can enter as a voluntary employee, participate in board meetings, every three months, pay monthly fees etc. For this purpose, this regiment was created that will analyze the entry and the council decides by secret ballot. It is not just any. Many companies will want our stamp. The institute's companies are the most inspected by the government.
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