The impact of smuggling on the reality of Brazilians


Edson Vismona

One of the unpublished research commissioned by the Brazilian Institute of Competitive Ethics (ETCO) for Datafolha brings surprising data. The survey carried out with more than 900 people from the south-east of the country shows that the majority of respondents (75%) believe that the entry of smuggled products in the country favors the growth of violence and crime. And even more alarming: even in the face of this information, most respondents recognize that they will continue to buy illegal goods.

But what makes the smuggled product so attractive? Another question asked in the research can elucidate this question: the high taxes practiced in Brazil. For 86% of respondents, the increase in taxes on Brazilian products favors the entry of contraband products. This is because, due to taxation, the national product generally costs more. It is the question of price.

Take for example the most smuggled product to Brazil, cigarettes, where the tax burden can exceed 80%. It is not difficult to conclude why, currently, 30% of the Brazilian market is dominated by smuggled brands, generating, in 2015 alone, tax evasion of R $ 4,9 billion to public coffers.

Currently, 19% of the Espírito Santo cigarette market is dominated by illegal brands. Between 2012 and 2015, the contraband cigarette market jumped 6% in the state, while the formal market suffered an equal contraction. While brands like Gifty and Bill are sold for an average price of R $ 3,77 - below the minimum price of R $ 5,00 established by law - the state accounts for losses of R $ 75 million, just due to tax evasion between 2012 and 2015. Therefore, they lose the government and the population and the criminals, who are extremely successful in their business, carried out on the margins of any Law, win.

It is certain that a tax measure would be of great help and could have significant effects. In the case of cigarettes, specifically, such a measure should seek a balance that would allow the effectiveness of tax adjustments in terms of reducing consumption, without, however, causing the migration of consumers from the legal to the illegal market, as recommended by the WHO itself.

In addition to the tax issue, the fragility of the borders also needs to be combated, as it represents one of the main opportunities to face this crime. Specifically in relation to this point, the federal government has already been sensitized and determined the creation of a working group formed by several ministries related to the subject. A recent report by the Federal Court of Accounts (TCU) pointed out several opportunities for efficiency and, mainly, governance for the resolution of the border problem, which is of public interest and national sovereignty.

In the fight against smuggling, however, it is necessary that the authorities, both at the federal and state levels, understand what society has already understood: tax increases are no longer tolerable and the government has a fundamental role in establishing an environment legality and fair competition in the Brazilian domestic market.

Edson Vismona is executive chairman of ETCO - Brazilian Institute of Competition Ethics

Article published in the newspaper A Tribuna (ES) on 14/10/2016