It's time to attack tax evasion
Source: Gazeta Mercantil, March 08, 2004
By Dilson Ferreira
In recent times, the topic of tax evasion has come into the agenda with greater force, driven, on the one hand, by the growing demand from society for a more ethical posture of companies and, on the other, by the government's need - at the federal, state levels and municipal - to increase revenue. The discussion of tax and social security reforms in 2003 helped to highlight the issue.
The media, in general, has contributed to keeping the subject on the agenda, giving due attention to concrete cases of the practice, to measures and initiatives developed by authorities, class associations and NGOs. or the opening of lawsuits against them, as well as the space given to statements by high authorities - such as Minister Palocci - on the subject, create the necessary sounding board for Brazilian society to stop tolerating tax evasion, abandoning one of the subchapters of Gérson's Law, the one who preaches that not only should not pay tax, but it is also advisable to boast about this fact.
It is also necessary to remember that tax evasion leads to an increase in the tax burden for those who correctly pay their taxes. When the universe of taxpayers is reduced, the government's solution has been to increase tax rates or create new taxes and contributions for that same universe - a process that has been the focus in recent years.
The entry into action of the Brazilian Institute of Ethics in Competition (Etco), led by the experienced and articulate businessman and politician Emerson Kapaz, is another fact to be added to this “good fight” against tax evasion. Although its objective is broader - combining counterfeiting, combating counterfeiting, adulteration and piracy -, the weight of the sectors and companies involved in its constitution contributes to giving greater density and visibility to this struggle.
Like so many other sectors, paints are seriously affected by this practice. We estimate that at least 20% of the volume produced does not have the corresponding tax collection. This harms the whole society, since, by reducing the collection, there is less money for government investments in essential areas such as education, health, housing and security. And it affects in particular the manufacturers and resellers who act in an ethical manner, since, sold without taxes, the ink of the tax evaders gains an unparalleled competitive differential, even greater in a conjuncture of falling wage earners, in which the price is a preponderant factor in the buying decision. Just to have an idea of how this is a very serious case of unfair competition, the value of taxes plus social contributions represent up to 50% of the value of the paint sold by manufacturers. In addition, those who pay taxes do so in advance - which reduces working capital and has a financial cost. And yet, as the sector is among those that are subject to the tax substitution process, if the customer (retailer) does not pay the paint - for bankruptcy, defaults or any other problem - the manufacturer will have to bear the tax amount already collected.
There is also an additional problem associated with tax evasion, which affects both manufacturers and consumers: loss of quality. As the tax evader often operates illegally in the purchase of raw materials - in order to avoid a mismatch between buying and selling -, he ends up using materials of lesser quality and inferior technology, selling products with characteristics below those desirable. The poor quality of this product ends up affecting the image of the sector as a whole, since the consumer tends to make a generalization in his evaluation. It is another disincentive for manufacturers who, in addition to correctly collecting taxes, continuously invest in technological updating, research and development, customer services, environmental care and social responsibility.
We need to take advantage of the current moment, when combating tax evasion has become a topic that has been welcomed by the government, society and the media, to decisively attack this practice. The task is up to all of us who believe in the possibility of a more ethical and socially fairer country.
Dilson Ferreira Executive President of the Brazilian Association of Paint Manufacturers (Abrafati)
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