According to a study by ETCO and FGV / Ibre, stability in informality this year reflects the economic recovery

After growing for two consecutive years, the underground economy stabilized in 2017 and returned to represent 16,6% of the Gross Domestic Product (GDP). The calculation is from the Underground Economy Index (IES), a study carried out in partnership by the Brazilian Institute of Ethics in Competition (ETCO) and the Brazilian Institute of Economics of the Getúlio Vargas Foundation (FGV / Ibre).

Informality in the country generated, in the 12 months ended in July, the equivalent to R $ 1,077 trillion. The number represents the GDP of countries like Colombia and South Africa. The underground economy is the production of goods and services not reported to the government deliberately, with the aim of evading taxes, evading social security contributions, circumventing compliance with laws and labor regulations and avoid costs arising from compliance with the rules applicable to each activity.

The IES has been held since 2003 and, until 2014, registered a constant improvement in the level of formalization of business in Brazil. During this period, the shadow economy fell from 21% to 16,1% of GDP. In 2015, the index suffered its first setback since the beginning of the historical series, a situation that worsened last year.

GRAPHIC IESSize of the underground economy

An important point for the resumption of the formal economy to take place, and to continue in the coming years, is labor reform. “ETCO's expectation is that the new CLT rules will bring about a safer environment for employers and workers. As a consequence, the judicialization of contracts tends to decrease and there will be more incentives to increase the number of employees with a formal contract ”, says ETCO's executive president, Edson Vismona.

Despite the prospect of future improvement, Vismona points out that the country cannot be content with just recovering what was lost in the past two years, without further progress. “A country that intends and needs to attract investments in order to develop cannot accept living with such high levels of informality”, he adds.

According to Fernando de Holanda Barbosa Filho, a researcher at FGV / Ibre, the informal market stopped growing with the end of the recession, but that was not enough to reverse the downward trend of the index. "With the prospect of GDP growth of more than 2,5% for 2018, the trend is for the economy to improve as a whole and positively impact the formalization of business in Brazil," he highlights.


About the Shadow Economy Index 

ETCO believes that knowing the size of the problem is critical to tackling it. Much is said, but little is known, about informality, piracy and evasion, as, as illegal activities, they are difficult to measure. The ETCO, in conjunction with the Brazilian Institute of Economics of the Getúlio Vargas Foundation (FGV / Ibre), has since 2007 published the Underground Economy Index, a study that estimates the values ​​of activities deliberately not declared to public authorities, with the objective of evading taxes, and those of those who find themselves in the informal sector due to excessive taxation and bureaucracy.

Underground economy stops decreasing for the first time in 12 years

ETCO and FGV / IBRE study reveals that, after a long period of contraction, the informal market stops and moves the equivalent to 16,1% of the Brazilian GDP

Sao Paulo, November 30 of 2015 - The Underground Economy Index (IES), released today (25) by the Brazilian Institute of Ethics in Competition (ETCO), together with the Brazilian Institute of Economics of the Getúlio Vargas Foundation (FGV / IBRE), showed that the informal market moved R $ 932 billion in 2015. This value represents 16,1% of the country's Gross Domestic Product (GDP), exactly the same percentage obtained in 2014. It is the first time since 2003, the first year of the index estimate, in which there was no percentage reduction of the informal market.


The conclusion is that the stagnation in the informality index results from the economic recession and political instability. “Much more than an indicator, the number shows a market trend. The forecast for the coming years is for a change in the scenario with growth of the informal market. Indicators such as the increase in inflation and unemployment and the difficulty in accessing credit hinder the reduction of this market. ”, Analyzes Samuel Pessoa, a researcher at FGV / IBRE.

In absolute values ​​and updated prices, the underground economy moved R $ 932 billion in 2015. Last year, this value totaled R $ 889 billion. This amount corresponds to the entire production of goods and services not deliberately reported to the government, which, therefore, is not included in the national GDP.

In the last 12 years, the index fell 4,9 percentage points, and with the exception of 2009, the year in which the country was also in recession, there were drops of 0,7 pp from 2006 to 2011, a period in which the HEI went from 20,2% to 17%. Between 2012 and 2014, the slowdown began, a direct consequence of the sharp drop in the number of formal hires by the industry and growth in the service sector, which has higher levels of informality than the industry. This is the first year in which there is no change in the percentage of informality - the index maintains the 16,1% presented in 2014.

Table IES2015

“ETCO's role is to strengthen measures that reinforce competitive ethics and that help in predicting the business environment. The Institute is focused on combating the transgressions that plague the economy and business activity, resulting mainly from tax issues and regulatory activity. ” says Evandro Guimarães, Executive President of ETCO.

What is certain is that informality brings direct damage to society, creates an environment of transgression, stimulates opportunistic economic behavior, with a drop in the quality of investment and a reduction in the growth potential of the Brazilian economy. In addition, it causes a reduction in government resources for social programs and investments in infrastructure.

About the Shadow Economy Index 

ETCO believes that knowing the size of the problem is critical to tackling it. Much is said, but little is known, about informality, piracy and evasion, as, as illegal activities, they are difficult to measure. The ETCO, in conjunction with the Brazilian Institute of Economics of the Getúlio Vargas Foundation (FGV / IBRE), has been publishing since 2007 the Underground Economy Index, a study that estimates the values ​​of activities deliberately not declared to public authorities, with the objective of evading taxes, and those of those who find themselves in the informal sector due to excessive taxation and bureaucracy.



Microenterprises face an almost impossible mission

It is increasingly difficult for microenterprises to keep the accounts up to date and escape tax assessments

The IRS tax assessments increased 39,7% in the first half of 2015 compared to the same period last year. Figures released by the tax authorities show that the taxpayers' debts, related to taxes, fines and interest, reached R $ 75,13 billion between January and June. In the same period in 2014, the value had been R $ 53,7 billion. In the whole of last year, it totaled R $ 150,5 billion and was the second highest value obtained by the Tax Authorities - higher only than 2013 (R $ 190,1 billion). If in the second semester the assessments increase, as in the last year, 2015 could break a new record.

Hugo Amano, partner at BDO's tax consultancy Photo: Disclosure

Record after record in the assessments only proves that more and more tax evasion intentionally or due to lack of knowledge became an almost impossible mission. Yield omission is one of the most common factors that lead to fine mesh. The lack of clarifications and rectifications in the Federal Revenue database can result in assessments whose fines vary between 75% and 225% of the tax amount.

According to experts from the Skill group, which maintains a blog on accounting matters of interest to micro and small companies, the increase in the assessments is related, among other factors, to the increase in the number of micro and small companies that have requested to join Simples (for companies with annual sales of up to R $ 3,6 million), which increased 125%, surpassing the mark of 10 million companies.

Valeria Zotelli, partner-lawyer in the tax area of ​​Miguel Neto Advogados, recalls that, since the computerization introduced by the Public Digital Bookkeeping System (Sped), some procedures usually adopted by those under the Simples regime or framed as Individual Microentrepreneur (MEI) are increasingly within the reach of the Revenue.

“Opening a company on behalf of the son or employee is quite common among restaurant chain owners, for example - but, when the profit of all these companies comes to the main owner, he needs to declare this income and, as there is no declaring without paying Income Tax, ends up being exposed ”, he says.

Those who are within the MEI rules can have annual revenue of up to R $ 60 thousand reais and, in this case, only pay R $ 50 per month in taxes. But there is a requirement that the MEI has only one employee - but some have three employees, two of whom are not formally registered. If one of these two goes to court asking for an employment contract, for example, the Labor judge can send the information to the IRS, showing that the person classified as MEI did not actually comply with the rule, explains Valeria.

“Nowadays, even Simples companies that evade are taking a serious risk. They pay tax based on billing, and the tax authorities can take crossings. This is simpler than it looks. For example, who sells with credit cards should not evade, as operators report. You can no longer run away, you have to pay tax on what you sold ”, reinforces Hugo Amano, partner in the tax consultancy division of BDO.

Lea de Luca

Source: DCI (31/08)


To read the article directly from the source click here. 

Battle of Brazil

Guiherme Afif Domingos

This week we celebrate a victory for the struggling class of our country, formed by individual microentrepreneurs (MEIs). We reached the mark of five million formalized Brazilians, who now have state security and access to social security rights.

Source: Folha de São Paulo / Opinion (17/06)

To read the full story, click here

House approves project that allows outsourcing of the company's core activity

Deputies approved an amendment that allows outsourcing to any sector of a private company. Photo: Luis Macedo / Chamber of Deputies
Deputies approved an amendment that allows outsourcing to any sector of a private company. Photo: Luis Macedo / Chamber of Deputies

The Chamber of Deputies concluded on Wednesday (22) the vote on the bill for outsourcing (PL 4330/04). An amendment was approved in Plenary that allows the outsourcing of core activities of companies in the private sector to be outsourced and that changed several points of the basic text of the proposal. The text will go to the Senate.

The amendment, authored by PMDB and Solidariedade, was approved by 230 votes to 203. The text does not use the terms activity-end or activity-means, but allows outsourcing of any sector of a company.

Signed by the project's rapporteur, deputy Arthur Oliveira Maia (SD-BA), and by the PMDB leader, deputy Leonardo Picciani (RJ), the amendment also expanded the types of companies that can act as outsourced workers, opening up the offer to associations, foundations and individual companies (of one person). The individual rural producer and the liberal professional may appear as a contractor.

Another change in relation to the base text is the reduction, from 24 to 12 months, of the quarantine period that former employees of the contractor must comply with in order to be able to sign a contract with them if they are owners or partners of an outsourcing company. Retirees will not be required to meet deadlines. Quarantine seeks to avoid hiring former employees through individual companies.

Subcontracting by the contractor (“quarteirização”) can only occur when it comes to specialized technical services.


Jobs or insecurity
The PDT leader, Deputy André Figueiredo (CE), criticized the proposal. “They want to transform workers in PJ [legal entity]. The original project spoke in 24 months and is now in 12. It will make it easier to circumvent the legitimate outsourcing project, ”he said.

For the rapporteur, Arthur Oliveira Maia, the project was debated for a long time. He stressed that the differentiation between activity-environment and activity-end was created by the Superior Labor Court (TST). "This differentiation only exists in Brazil and was not created by this House, which has the function of legislating", he criticized.

The outsourcing of the core activity is condemned by the union leaders with the argument that it will weaken the workers' organization and, consequently, their negotiation strength with the companies. Entrepreneurs, on the other hand, argue that this contracting system will bring more agility and cost reduction for the contractor, with effects on the economy.

outsourcing infographics

To access the full proposal: 4330 PL / 2004

Source: Agência Câmara de Notícias (22/04)

More than half of young people employed in Latin America are in the informal sector

ILOAt least 27 million young people between 15 and 24 years old work informally in Latin America and the Caribbean, which represents 55% of the total employed youth in the region, according to the report “Formalizing youth informality”, which the ILO (International Labor Organization) Labor) presented this Wednesday (22) in Lima.

ILO regional director for Latin America and the Caribbean, Elizabeth Tinoco, pointed out that six out of ten jobs for young people are in the informal sector, and this is “a greater concern for youth unemployment because it directly affects the quality and conditions of youth. job".

Tinoco presented the main conclusions of the study to the director of the ILO office for Andean countries, Carmen Moreno, and the ILO regional specialist in youth employment, Guillermo Dema.

Source: Portal R7 (22/04)

To read the full story, click here

We cannot let the underground economy grow again

Evandro Guimaraes


Each year, a volume of money almost equal to the sum of GDP in Rio de Janeiro and Minas Gerais changes hands in Brazil through informal economic activities. It evades inspection, puts consumers' health at risk, pays no taxes and disrupts the businesses of companies that act within the law. The underground economy represents one of the greatest challenges for the growth of the economy and the fair distribution of its benefits among the entire population.

Although in recent years Brazil has managed to advance in the fight against this evil, there is still a long way to go. Statistics show that, after a decade of continuous reduction, informality has parked at 16% of GDP. Just stopping decreasing is a dangerous sign. Even more worrying is to imagine the possibility of a setback in the levels of business formalization, common in times of economic crisis and tax increases like the current one. If we Brazilians intend to resolve the obstacles that hinder the development of the economy in a vigorous and lasting way, avoiding this risk is an inexorable mission.

To fight effectively, you need to understand the problem first. The underground economy is not an exclusive feature of Brazil and its causes and consequences have already been well studied. An important part of businesses that hide from the light is related to criminal activities. Smuggling, drug trafficking, cargo theft, counterfeiting of products and piracy are the main sources of illicit resources in the hold of the economy. For these activities, the only acceptable solution is the fierce and persistent combat, with inspection, policing and punishment of those involved.

There is, however, a part of informality that does not involve criminal actions, but it does not fail to cause serious consequences for the country and the population, especially the poorest. It is embodied in attitudes such as that of the doctor who charges cheaper for an appointment without a receipt, of the property owner who does not declare income from rent, of the industry that produces without proper licenses, of the company that imports under-invoiced products, of the merchant who does not declare its sales.

This type of informality encourages opportunistic behaviors, creates an environment of violation of the rules and, with this, reduces the quality of investments in the country. In addition, it harms public finances by withdrawing government resources that could be used for social programs and infrastructure projects.

From the collection point of view, it is easy to calculate the size of the loss. Last year, the underground economy moved around R $ 830 billion in Brazil without paying tax. Considering that the Brazilian tax burden is around 37% of GDP, it can be deduced that the country stopped collecting in just 12 months more than R $ 300 billion in taxes, equivalent to 12 years of Bolsa Família or 23 years of public funding for higher education, FIES.

But informality also hinders the development of the productive sector and the country. When a company has to face competitors that do not comply with rules or pay taxes, it loses confidence and stops investing in more modern and efficient factories. Productivity falls, the country loses competitiveness and growth is compromised.

Since 2003, the ETCO-Brazilian Institute of Ethical Competition and the Brazilian Institute of Economics of the Getúlio Vargas Foundation in Rio de Janeiro have conducted an annual survey on the size of the informal economy in the country, expressed through the Underground Economy Index (IES). During this period, there was a significant advance in the reduction of this index, which fell from 21% of GDP in 2003 to 16,1% in 2014. The progress was due to a set of factors, such as the expansion of credit, which demanded greater formality; improvements in the collection systems, such as the creation of the Electronic Invoice, which had a great effort by ETCO; tax substitution systems, in which the tax started to be collected in the main phase of the production and consumption chain; initiatives such as the National Family Agriculture Strengthening Program (Pronaf), the Simples tax regime and the institution of the figure of the Individual Microentrepreneur (MEI); the increase in public investment in education, which contributes to the reduction of informality in the labor market.

Yes, we have moved forward, but we cannot be satisfied. We must continue efforts to incorporate a volume of resources into GDP that is greater than everything that a country like Israel produces each year. The timing is crucial. In the index released last year, the shadow economy declined by just 0,1%, and since then macroeconomic conditions have deteriorated. The economy has slowed down, credit has declined, the government has reversed its policy of exemption and has been insisting on the path of increasing taxes to achieve balance in its finances.

Several studies have already shown that the moments of economic crisis and fiscal austerity bring the increase in clandestinity in tow, when people or companies affected by the crisis try to compensate their losses by fleeing their tax obligations. It is at this time that the country needs to choose the direction it intends to take: whether that of complacency with the illegal or that of compliance with the rules. One chooses the easy shortcut to further increase the tax burden of those who act within the law or take the most difficult path by engendering the necessary reforms to reduce informality and increase the taxpayer base.

The recipe for combating the shadow economy is well known. An effective ingredient is tax breaks, which diminish the advantage of tax evaders. Another measure with a proven effect is tax simplification. A World Bank survey shows that medium-sized Brazilian companies spend 2.600 hours a year to take care of all the tax bureaucracy, compared to just 620 hours of the South American average. In the information and technology age, it is not acceptable wasting our energy on useless and repetitive tasks. It is time to carry out the long-awaited tax simplification for all business segments.

Strengthening enforcement is certainly another effective initiative. We can no longer tolerate, for example, pirated or smuggled products being sold in broad daylight at noble and well-known addresses in major cities. This explicit illegality is a mockery of citizens and companies that act within the law.

Last but not least, we have to honor, support, publicize and value public policies or initiatives of any kind that allow an effective fight against counterfeiting, adulteration of products, sophisticated smuggling, such as importation through sub-invoicing. It is necessary to honor efforts, ideas and valuation movements of those who manufacture safe products for the consumer and collect the taxes due. Only then will we be able to build a richer and fairer country for all.


* Evandro Guimarães is president of ETCO-Brazilian Institute of Competition Ethics

Combating informality


Evandro Guimarães at an event on the National Day to Combat Smuggling. (Photo: Marcelo Camargo / Agência Brasil)
Evandro Guimarães at an event on the National Day to Combat Corruption. (Photo: Marcelo Camargo / Agência Brasil)

Evandro Guimaraes

In a year of changes in the economy, with great expectations from society about the direction of public finances and about the development of trade and industry, fiscal adjustment is a condition for the resumption of the country's growth.

The target for 2015 is a primary surplus of 1,2% of the Gross Domestic Product (GDP), that is, R $ 66,3 billion for the entire public sector - which includes states, municipalities and state-owned companies. Last year, for the first time since 2002, public accounts registered a deficit. According to the most recent data from the Central Bank, it was R $ 19,64 billion until November.

If the country really has to face a fiscal squeeze, it is essential that the government takes tough and permanent measures in the face of losses caused by products sold outside the formality. These illegal products affect competitiveness in the business environment, discourage investment in the affected sectors and encourage tax evasion. It is therefore necessary to launch an offensive against these crimes.

When, on January 19, the Minister of Finance, Joaquim Levy, announced measures to balance the public accounts, foreseeing the collection of another R $ 20 billion in 2015, the Federal Revenue Secretary, Jorge Rachid, was at his side, who returned to the position almost seven years after leaving it.

"We will not give any truce to those who do not comply with tax obligations," said Rachid. He doesn't lack experience for that. He has already been a member of the Council to Combat Piracy and created, in the Federal Revenue, divisions specialized in the inspection and repression of these practices. Its presence indicates that the government is willing to recover the role of the Revenue in the elaboration of tax policies and to return the focus to the inspection.

Initiatives to reinforce the inspection and fight against smuggling, piracy, counterfeiting and evasion are supported by the National Forum Against Piracy and Illegality (FNCP) and the Brazilian Institute of Ethics in Competition (Etco).

In September 20, the two entities, together with 2014 business and civil society organizations, launched the Manifesto in Defense of the Brazilian Legal Market, suggesting 12 measures aimed at changing the current situation of lack of control and lack of supervision.

This scenario, which had a serious impact on Brazilian industrial production, caused losses of more than R $ 30 billion in 2013, according to a FNCP survey. In that year, the main illegal products seized by the Revenue were cigarettes, vehicles, electronics, clothing and sunglasses.

O Manifesto in Defense of the Brazilian Legal Market provides for the creation of the National Anti-Smuggling Day, on March 3. Making the population aware of the consequences of consuming illegal products is another fundamental ingredient in the recipe for Brazil to have its accounts balanced and its industry full of vigor.

(article published in the Folha de São Paulo newspaper, in the OPINION section, on 03/03/2015)