For Revenue, Etco 'heavily overestimates' tax evasion in the country


Source: O Estado de S. Paulo, 12/09/2007

The Federal Revenue considers that the projection that tax evasion in the economy is of the order of 30% of the Gross Domestic Product (GDP) is overestimated. A report published in the State, in last Sunday's edition, points out that tax evasion has almost the same proportion of the tax burden, which today is around 35% of GDP. The estimate is 'heavily overestimated', says the Revenue in a note sent to the State. During the investigation of the data last week, the Revenue was sought by the report, but did not comment.

The evasion estimate is from the president of the Brazilian Institute of Ethics in Competition (Etco) and a licensed professor of Public Finance at the University of São Paulo, André Franco Montoro Filho. The economist projected the global number based on information from five sectors that make up the institute: fuels, tobacco, medicines, drinks (beer and soft drinks) and technology.

The IRS says that 'it has no studies, methods of calculations or estimates that can corroborate' the projection made by the president of Etco and disputes the primary data on which the projection was based. The IRS says that 'there is a mistake in taking retail sectors to project levels of tax evasion for the entire economy, since a large part of the tax burden, especially when it comes to indirect taxes, affects the production chain before the goods reach retail' .

The Revenue also points out that there are sectors in which the taxation of the entire productive and commercial chain is concentrated on production, through tax substitution mechanisms, such as gasoline and diesel.

Montoro Filho reaffirms his projection and clarifies that he considered evasion in the calculations in the broadest sense. In this case, the term includes not only tax evasion to the letter, but also defaults, embezzlement and smuggling. "Our concept of tax evasion may not be the term adopted by the tax literature," he says.

In addition, he notes that this is an estimate based on five sectors that make up Etco. These sectors are, according to him, among the ten with the highest rates of tax evasion. Montoro explains that the sectorial tax evasion indicators considered in the projection encompass the entire production chain, not just the retail sector. It agrees with the Federal Revenue's observation that tax evasion is small in the case of gasoline, but highlights that it is high in alcohol, which pulls up the tax evasion in the fuel sector.

The economist also points out that in his projections he considered not only these sectors, but also others, such as DVDs, CDs and labor market figures. Today, says Montoro Filho, almost 60% of the workforce works without a formal contract, which generates informality and the non-payment of taxes. "Taking into account sectors in which tax evasion is higher, others in which it is less, informality in the labor market and tax evasion in the broad sense of the term, the estimate is reasonable." He says the IRS is efficient and notes that there are obstacles in the laws that prevent better enforcement.