Gray changes color: informality falls


Source: DCI, 16/09/2008

Informality in the Brazilian economy in the areas of tax, labor and piracy has been under severe pressure and its reduction is noticeable, although not objectively measured. Tentatively justified by high taxes and disproportionate to the benefits offered, the schizophrenic bureaucracy and the social costs involved in hiring employees, the internal and external staff have contributed to migrate companies, businesses and activities in the gray and clandestine sector of the economy to a new reality . This process is most visible in matters involving tax evasion, where a combination of factors, led by the collecting revenue sustained by new processes and controls with more information technology, have placed an arsenal of resources to monitor, ascertain and stifle “heterodox” practices used in the market.

The most positive result of this whole process is a better ethical and competitive balance between companies, valuing investments in competence, resources, managerial capacity and planning. But, at the same time - and this is the perverse side of this picture -, the continuous and growing expansion of tax collection awakens the monster of public spending, which sees in this increase the key to increase expenses.

The recent history of the evolution of the collection of taxes and contributions in Brazil is one of the indicators of this process of fiscal and tax tightening. Between 2002 and 2007, federal tax revenue grew 85,8% and by mid-August 2008 this revenue was 65% of everything that was obtained in the previous year. Income from personal income tax increased 206% between 2002 and 2007 and corporate income 106%.

All of these figures far above the evolution of GDP show how efficient tax collection has been. And they signal the reduction of space for tax informality. Additionally, measures adopted in recent years have acted as a tourniquet, tightening informality. Crossing sales data with cards with those declared by retailers, electronic invoices and tax substitution for some product categories, are some of these measures.

Another source of pressure will come from the application of Law No. 11.638 of December 2007, which obliges companies with revenues greater than R $ 300 million or assets greater than R $ 200 million to have their balance sheets audited. The indirect pressure on tax informality resulting from this set of factors brings changes in business, many of which are already noticeable.

Formal organizations, especially in retail, have an improvement in their competitive condition, expanding their possibilities of increasing profitability and participation through greater balance in market prices. There is an acceleration of the market consolidation process due to the disincentive of shareholders with the reduction of the net profitability of businesses that adopted some form of non-conventional tax practice and that are pressured by the need to calculate and correctly collect taxes. There is an increase in investments in controls, processes, the search for efficiency and productivity, as well as an acceleration of the professionalization of management, in order to compensate for the lower profitability and business results that previously adopted some form of tax deviation.

In retail, smaller chains, which were only made possible by such “heterodox” practices, lose their attractiveness and encourage their controllers to join in the joint search for solutions to make the business viable and interesting, stimulating the formation of alliances in the form of exchanges independent or sponsored businesses. Pressure is increasing for suppliers or wholesalers who depended in part on the ability to compete from some of these independent chains or stores that were made possible by the adoption of these informal practices. In this case, your distribution spraying strategies are compromised.

The real level of informality in retail is impossible to measure accurately, but it has already been estimated at something close to 30%, a number that shows a declining trend. In the coming years, there will be an acceleration of this decline and an organizational and professional reconfiguration of the market. Not everyone will assist you in the position you occupy today.