On September 20, the Chamber of Deputies' Commission on Public Security and Combating Organized Crime (CSPCC) held a public hearing to discuss issues about the illegal cigarette market in Brazil. With the presence of journalist Marcelo Rezende, Rede Record and the executive president of ETCO among the guests, the meeting took place in compliance with Requirement 0037/2011, by deputies Enio Bacci and Arnaldo Faria de Sá. Also participating were the Tax Auditors of the Federal Revenue of Brazil, Marcelo Fish Menezes and Waltoedson Dourado de Arruda; and Inspector Moisés Dionísio da Silva, who is Chief of the Crime Fighting Division of the Federal Highway Police Department.

In his participation, ETCO's executive president, Roberto Abdenur, recalled that smuggling and counterfeiting are problems faced by all sectors of the economy and pointed out three causes for the specific case of illegality in the cigarette sector: the high demand from the consumer market and poor income distribution; the high earning potential through tax evasion in return for a high tax burden that results in higher prices charged by the formal market; and finally, impunity, where low penalties for crimes of misdemeanor, smuggling and trifle have resulted in lengthy lawsuits and the so-called “injunction industry”.

“Despite data showing a reduction in the volume of sales in the formal market, between 2008 and 2010, it was noticed, however, a 21% growth in the volume of contraband in the country, and, not infrequently, there is a contamination of illegal cigarettes in many establishments that sell products in the sector, ”he warned. Research shows that these smuggled products usually contain foreign substances such as insect remains and metal fragments.

Marcelo Rezende, a journalist who has great experience in monitoring the fight against drug trafficking in Paraguay, highlighted the extremely high Paraguayan production of cigarettes and the growing use of Brazilian labor, which sometimes employs even minors in areas bordering the country. According to him, "as in the case of drug trafficking, Brazil lacks political will to fight the illegal cigarette market".

Rezende recalled the little attention given to the problem and the insufficient financial and human resources destined to fight this market. "Although it is not a market with a simple structure, it is clear that there is no training, employees or an adequate legal framework to combat smuggling," said the journalist.

On this topic, the president of ETCO pointed out the lack of rigor in regulation, inspection and control in production in Brazil as the main causes for the development of the illegal industry, in addition to the tax asymmetry in relation to the neighboring country. According to him, "due to the great production of Paraguay, Brazil ends up playing the role of a large consumer market, suffering, however, impacts in areas such as tax collection and job creation".

Like Abdenur, the Auditor of the Federal Revenue of Brazil, Waltoedson Dourado de Arruda highlighted the problems with Paraguay and reported that in the last year there has been a 40% increase in seizures. "The increase in this index, however, does not indicate greater efficiency, since the inspection bodies still have deficiencies, but rather the increase in the entry of contraband products".

According to Inspector Moisés Dionísio da Silva, Chief of the Crime Fighting Division of the Federal Highway Police Department, the difficulty is due to the constant changes in smugglers' strategies due to the plans adopted by the Police. He presented an overview of the department's apprehensions and warned: “with the increase in the inspection related to Paraguay, there is a migration of smuggling to Bolivia”.

In defending the construction of preventive and educational projects with the retail market and society, the president of ETCO demanded a change of mentality in order to join preventive, repressive and educational measures. According to him, it is necessary to share intelligence systems and strengthen the police apparatus.

Marcelo Fisch pointed out that due to the illegal market, the IRS estimates to have a loss of R $ 1 billion in the collection and informed that the agency has been looking for tools, such as the creation of the control seal; special register; production control and tracking; implementation of electronic invoices; expansion of control for cigarillos; in addition to the establishment of a new IPI tax regime and minimum retail price through Provisional Measure (MPV) 0540/2011.

Fisch demanded greater speed, on the part of the National Congress, for the approval of MPV 540, defending “the establishment of the minimum retail price, since the tax evasion has occurred since the beginning, usually by smaller manufacturers, through the practice of prices incompatible with the tax burden of the product ”.