The imbalance poses a trap for the productive sector. A large company finds it difficult to operate informally. On the one hand, the visibility itself makes it much more supervised. On the other hand, an eventual scandal can be fatal in the case of a well-known brand (which does not prevent many of them from also circumventing the law). The obligation to pay a lot of taxes and compete with tax evaders can lead to a decision to leave the market. This is what Josmar Verillo, president of the Brazilian subsidiary of Alcoa, one of the largest aluminum producers in the world, says. Some Alcoa products are used in civil construction, such as window frames or bathroom stall metal. For some years now, the company has suffered doubly from informality. Firstly, for piracy. “Our products have even been included in the catalog of some competitors,” says Verillo. Second, competition from companies that are able to offer artificially low prices. "We just abandoned some markets," says Verillo. The result is that the appetite for investment decreases over time.

The same trap also imprisons successful informal businesses. As soon as they grow up, the competitive edge conferred by informality starts to represent a headache. As they increase in size, they naturally start to attract inspection - everything they don't want. Informality is a problem when it comes to financing from banks. Attracting talent is just as complicated. In other words, informality can quickly become a barrier to growth and investment. “Brazil is in a perverse balance in which formal companies cannot grow, and informal companies cannot grow,” says Diana Farrell, director of the McKinsey Global Institute, the company's economic research institute.

It is not just the high tax burden that encourages tax evasion. It also rides on another wave: the low capacity of the Federal Revenue to inspect. A survey by the Getulio Vargas Foundation with more than 50 companies with up to five employees showed that only 000% of them were up to date with the tax authorities. With few resources, the inspectors are concentrated in large companies, which account for a significant portion of revenue. The result is almost certain impunity in the rest of the market. The example of pharmacies is illustrative. The largest chains in São Paulo account for 15% of the estimated revenue of the sector. But they collect half of the ICMS collected by the state. Mathematically, this is only possible because someone is failing to pay what they owe. The distribution of products starts to be thought following the logic of evasion. It is common practice to financially reward truck drivers who are able to avoid meeting tax officials on the roads - as the expedient allows them to “reuse” the same invoice. This makes the distribution route vary because of the inspection. Another habit is to register only part of the transported cargo, betting that the inspector will not check the cargo. "These are practices of this type that explain prices below the cost of production," says Milton Seligman, director of corporate relations at Ambev. “One thing is the promotions that we all do. It is quite another to have a systematic price pattern that is justified by tax evasion. ”

Another example of a break in economic rationality concerns the so-called “goods tour” in the country. The Brazilian tax system allows each state to have its own tax policy. This creates unusual situations. Imagine the example of an auto parts producer in São Paulo that supplies to a store in Minas Gerais. One would expect the transaction to be made through the shortest distance between the two points. In practice, what happens is a triangular sale, in which the product travels to Brasília and goes to Minas. In the first case, the ICMS paid would be 12%. In the second, only 8%, since the Federal District offers a discount to be able to host an activity that would otherwise pass miles away. Note that all of this happens under the chaotic legislation. It is as if the State is pushing people to practice a certain excessive tax creativity.

Inspection problems are not restricted to the tax authorities. There are a number of other ways to gain competitiveness informally, many of them bypassing health authorities. Many refrigerators "boost" the weight of chickens by injecting water into the animals' chests just before freezing them. Weight gain can reach 25%. This allows to deceive the consumer with lower prices. "The result is that there are no more whole chickens from the leading brands in supermarkets," says Nildemar Secches, president of Perdigão, one of the largest food companies in the country. "We have no chance to compete on those terms." The company has directed much of its production abroad, as sanitary controls, especially in Europe, are much stricter for everyone, reducing the space for unfair competition. In addition, products sold abroad pay a much lower tax burden - around 5%, compared to 30% paid for production sold in Brazil.