Smoke

By ETCO
17/01/2011

Illegal Cigarette Market

It is estimated that around 27% of cigarettes consumed in Brazil in 2009 were marketed by manufacturers who do not pay due taxes, either through tax evasion, counterfeiting of brands, or cigarette smuggling into Brazil, mainly from Paraguay.

Illegality in the Cigarette Sector generates annual losses of R $ 2 billion in tax collection (federal and state), and encourages access to the product (due to the predatory prices provided by the non-payment of taxes), contrary to the objectives of public policies of health. In addition, smuggling and counterfeiting harm consumers (who are exposed to unregulated products in relation to their ingredients) and the generation of jobs in the country.

TAX EVASION

In recent years, a series of initiatives have been implemented by the Government to combat the sector's tax evasion: production control system (Scorpios) for all cigarette manufacturers, mandatory electronic invoice for cigarette manufacturers and distributors, new stamps controls, and changing the taxable event of the IPI to the factory outlet. The implementation of these measures has created an adverse scenario for tax evasion, leading to the cancellation of the special registration of some manufacturers in the sector. Some manufacturers operate supported by judicial measures, as they do not have the requirements established in Brazilian legislation to exercise the activity of manufacturing cigarettes. Find out which manufacturers are authorized by the Federal Revenue to sell the product in Brazil. Access: www.receita.fazenda.gov.br

However, the increasing effectiveness in combating tax evasion, together with the latest price increases practiced by the cigarette industry (as a result of the increase in taxes for the sector), caused a side effect: the increased attractiveness for smuggling and the counterfeiting of cigarettes.

CONTRABANDO

Despite the significant advances in the fight against tax evasion in the Sector, the measures mentioned above do not affect the smuggling of cigarettes into the country, mainly from Paraguay.

Paraguay annually produces over 40 billion cigarettes (more than 13 times its domestic consumption), which are largely smuggled into countries in South America, mainly to Brazil. Annually, about 19 billion cigarettes produced in Paraguay illegally enter Brazil.

The lack of rigor in the regulation, inspection and control in the production and sale of cigarettes in Paraguay is the main cause of the accelerated development of the illegal industry, and the attractiveness of this activity is enhanced by the large border area and the tax asymmetry between countries (the The tax burden on cigarettes in Paraguay is only 9%), generating an enormous profit opportunity due to the brutal price difference from the border.

Everyone is aware of the importance of the cigarette producing sector to the Paraguayan economy, but it is also important to understand the impacts of the lack of transparency in the production chain. The international community would certainly welcome an effort by the Paraguayan government to bring the rules for controlling the production, sale and taxation of cigarettes in Paraguay closer to the standards adopted internationally, especially by the Mercosur countries.