Taxes and smuggling

Executive President of the Brazilian Institute of Competitive Ethics (ETCO)

Since the 1970s, scholars from around the world have focused on a theory developed by the American economist Arthur Laffer, who refined theoretical concepts about the relationship between the size of the tax burden and its results for the collection of governments. Called the Laffer Curve, the theory shows that it is not possible to increase the taxes infinitely, because, at some point, the collection will start to fall. In Brazil, this moment has already arrived, in several product categories.article

Smuggling and other transgressions are serious problems and, as everyone knows, reduce overall tax revenue. The general increase in taxes, covering products that are very affected by competition with the illegal market, is indefensible. How to defend new increases knowing that this will cause unemployment, affect tax revenues, increase crime and destabilize companies based in Brazil?

The consumer will always continue to look for more economical alternatives. And then, corruption and crime come into play in the form of illegal operations, such as smuggling, counterfeiting, embezzlement and piracy. Criminal agents affect the demand for legal products. Brazilian products, jobs, revenues and collections are exchanged for products that enter our country illegally through borders, ports and airports. This story is being told every day by the media. But we don't seem to learn.

As of the second half of 2014, the Brazilian Institute of Ethics in Competition (ETCO), with 70 other entities representing sectors affected by illegality in the country, has been alerting the federal government to a series of problems that are destroying national productive capacity, such as smuggling, embezzlement and counterfeiting.

ETCO and the Movement for the Defense of the Brazilian Legal Market are unable to understand why they should not tackle the problem decisively, disregarding the evasion of R $ 100 billion annually resulting from these illegalities. We also do not understand why high-return operations, such as Agate, are not carried out more frequently, as they increase revenue, arrest criminals and seize drugs.

Take, for example, the case of the tobacco sector. The current tax model raised the IPI of manufacturers installed in the country by 110% in just 4 years. The consequence is there: the uncontrolled advance of cigarette smuggling in Brazil. Over 50% increase in contraband, between 2011 and 2014, made the share of contraband in the Brazilian market reach 34% in 2015, with tax evasion in cigarettes alone, in the period, exceeding R $ 10 billion.

We could mention more sectors with the same problem: drinks, medicines, clothes, software, cinema, optics, among others. The question then remains: what is the logic for the government to continue raising taxes on some categories of products in which the collection seems to be harmed?

All Brazilian society knows that the moment is delicate, and that it is necessary to find a solution to the country's fiscal problem. But there are several alternatives that should also be adopted, more effective than raising taxes. A study recently released by the Institute of Economic and Social Development of Borders (Idesf) maintains that a permanent Agate Operation could increase the collection by R $ 3 billion per year, only with the IPI and the Import Tax.

Part of the Brazilian productive sector is being slaughtered by illegality, and the creation of any additional taxes in product categories, which are already very affected today, will be ineffective if we do not fight against illegality and will bring huge financial losses for companies, for the government itself and for the population. It is up to the authorities to find alternatives that can develop our competitiveness on the international stage and enhance our domestic market.


Source: Correio Braziliense (05/10)