Tax burden and fragile borders make smuggling attractive

In an article published on the UOL Portal (14/09), Evandro Guimarães, president of ETCO, talks about the issues that make the smuggled product so attractive to consumers.

Read the full article:

Tax burden and fragile borders make smuggling attractive

Evandro Guimaraes

Special for UOL 


image-article-uolAn unprecedented survey commissioned by the Brazilian Institute of Ethics in Competition (ETCO) for Datafolha brings surprising data. The survey of more than two thousand people in 130 cities across Brazil shows that the majority of respondents (75%) believe that the entry of smuggled products into the country favors the growth of violence and crime. And even more alarming: even in the face of this information, most respondents recognize that they will continue to buy illegal goods. It is the question of price.

In other words, we have to understand what makes the smuggled product so attractive: the lack of tax equality generates a very large disparity in prices, leading the population with less purchasing power to buy smuggled items without any control by the health authorities.

Take, for example, the most smuggled product to Brazil: Paraguayan cigarettes. With the 140% increase in the IPI over the past four years, smuggling increased by 50%; the collection grew only 51%; legal production decreased by 2015% in 13 alone; and tax evasion was absurd R $ 4,9 billion in the same year. When taxes increase, all of these negative effects worsen as a result.

A fiscal measure would be of great help and could have significant effects. In the case of cigarettes, specifically, such a measure should seek a balance in which the tax adjustments were effective in terms of reducing consumption, without, however, causing the migration of consumers from the legal to the illegal market, as recommended by the WHO itself.

It so happens that, in the current Brazilian reality, in which 30% of the cigarette market is dominated by smuggled products, the increase in taxation is no longer able to reduce consumption - there is only a migration to illegal and cheaper brands - and not even to increase tax collection. Therefore, the government and the population lose and the criminals, extremely successful in their business, carried out on the margins of any law, win.

In addition to the tax issue, the fragility of borders also needs to be seen with care, as it represents one of the main opportunities in the fight against smuggling. Specifically in relation to this point, the federal government has already been sensitized and determined the creation of a working group formed by several ministries related to the subject. A recent report by the Federal Court of Auditors pointed out several opportunities for efficiency and, mainly, governance for solving the border problem, which is in the public interest and national sovereignty.

Another data collected by the Datafolha survey shows that the population already understood that reducing taxes is a way to have access to legal national products of known quality. 90% of respondents by the Datafolha Institute are in favor of a review of national product taxes to compete with smuggled goods.

We now need the authorities to understand what society has already understood: no more tax increases are tolerable and the government needs to do its part so that we have an environment for the legality of the Brazilian domestic market.





Brazil is one of the most informal economies in the world

ANEFAC cover

For Evandro Guimarães, executive president of ETCO (Instituto Brasileito de Ética Concorrencial), we are at the beginning of a path to overcome the “jeitinho” culture in Brazil. "But this beginning is still very tenuous", he says. The result is a balance that severely affects Brazilian economic activity.

In the interview given to ANEFAC magazine, he points out a critical view on behavior that permeates all social classes in the country.

To read the entire interview, click here

Smuggling has not declined despite high dollar and crisis, say companies

Even with the economic crisis and the increase in the value of the dollar against the real, the entry of illegal goods into the country has not decreased. According to a survey by the National Forum Against Piracy, an organization that gathers dozens of sectors affected by smuggling, the problem has even worsened.

According to Folha de S. Paulo, the fault would be the lack of action by the federal government in border control and the increase in taxes by state administrations, such as that of São Paulo. Business associations started an advertising campaign accusing the government of collaborating with a chain that generates unemployment in Brazil.

The entities were expecting that with the high dollar and the reduction of consumption in the country they could help in reducing the entry of foreign products that are banned or that do not pay taxes. However, they point out that the lack of border controls and the increase in taxes on national products has made this illegal market even bigger.

For Edson Vismona, who coordinates the Forum, the tobacco and clothing industries, the most affected, made surveys last year that revealed an increase in the share of contraband products in their sectors.

According to the data, in the case of cigarettes, the illegal market already accounts for 32% of the official market (it was 30%). In clothing, it reached 14,2% (it was 12%). In these two sectors alone, illegal products moved R $ 33 billion in the country.

In 2015, the affected industries ran a major advertising campaign to ask the government to take action against piracy. In the calculations of these organizations, the country stops earning R $ 100 billion per year with the permission for the entry of illegal goods into the national territory.

According to Evandro Guimarães, who directs the NGO Etco, which works in actions by business sectors for competitive ethics, there were no necessary measures to combat this type of deviation in the country and this justifies the increase in the tone of advertisements against the government. "We are realizing that there is a lack of an aggressive policy, which makes the fiscal adjustment through the fight against illegalities", said Guimarães.

According to TCU Minister Augusto Nardes, rapporteur of the process, separately, some entities that operate in the sector presented their projects to him on how to act on the border, but the Civil House did not present the requested plan. "We are concerned because there is a lack of integration between public policies", concluded Nardes.

Source: Mato Grosso News (3/03)


In an article published by the Correio Braziliense newspaper, ETCO's president warns of the serious problem of smuggling in the country and the negligence of the authorities.

 Free Smuggling

By Evandro Guimarães, CEO of ETCO and Edson Vismona, President of FNCP


There are situations in which the Brazilian government seems to be an ally of smuggling and embezzlement. The lack of governmental action to effectively combat this crime, which has harmful effects on the Brazilian economy, is certainly the main competitive advantage that criminals have over the national industry. Feeling free to act, smugglers are advancing in sectors that simply are not able to compete against those who do not collect a penny of tax, do not employ any Brazilian worker and do not follow the safety and health standards required in the country.

Created in the second half of 2014 by the Instituto de Ética Concorrencial (Etco) and the National Forum Against Piracy and Illegality (FNCP), with more than 70 entities representing sectors affected by illegality in Brazil, the Movement in Defense of the Brazilian Legal Market it aims to combat various forms of illegalities that have been harming the national industry, including smuggling and embezzlement.

Throughout this period, we hold events, produce studies and hold meetings with various authorities involved directly and indirectly in the fight against smuggling. More than that, numerous proposals were put forward that could have been adopted by the government, and that would certainly have an extremely positive impact on the problem. The fight against smuggling could be adopted, for example, as one of the efficient ways to increase government revenue without, however, further penalizing the productive sector through new and higher taxes.

Although we were received in all spheres involved and, most importantly, recognized by everyone within the government, the seriousness, extent and effects of smuggling for the country and the population, nothing has progressed. On the contrary, cuts in the payment of per diems and investments have dismantled border control initiatives by federal agencies (IRS, Federal Police and Federal Highway). This is a perverse equation: taxes are raised and investments are cut.

In view of this sad scenario, it is possible to intuit that the Brazilian government grants great space for the action of Paraguayan smugglers. To reach this conclusion, just analyze some data: only in 2015, contraband and embezzlement caused losses of R $ 115 billion to the country, 15% more than in the previous year, a figure that includes the losses of the national industry, taxes that are no longer collected, without calculating public health and safety expenses, among others.

Several sectors are severely affected by smuggling in Brazil, such as clothing, medicines and toys. But the sector that suffers most is certainly tobacco. In 2015, about 30% of the national cigarette market was dominated by smuggled brands from Paraguay, a country that currently produces 10 times more cigarettes than it has the capacity to consume. Of the 10 best-selling brands in the country, two are manufactured in the neighboring country and cross borders illegally, accounting for 13,4% of all national consumption, more than the best-selling brand.

Only this sector recorded tax evasion of about R $ 4,9 billion in 2015, or R $ 15 billion in the accumulated for the last five years, money subtracted from the government and which could become hospitals, highways, schools and other benefits for the population. population. The lack of governmental action raises important questions. Would it be absurd to neglect contraband the reason for this immobility? It is inexplicable that, faced with reality, the authorities have remained passive in relation to a devastating scenario for the national economy. The constant search for greater collection, both at the federal and state levels, creates an unsustainable situation, in which the economic attractiveness of the smuggling and illegality increases day after day. Stimulated by high profit margins and low risk, smugglers occupy the space of companies legally constituted in Brazil, without any kind of constraint by the authorities.

On this March 3rd, on which we hold the National Day to Combat Smuggling, we make an appeal. We want a legal Brazil, free of contraband, with a strong industry, generating jobs, paying bearable taxes and always contributing to the development of an increasingly developed society. But for that, we need attitude and leadership from the Brazilian government.

Article published in the Correio Braziliense newspaper, 03/03/2016

Our commitment for 2016

Evandro Guimarães, Executive President of ETCO


by Evandro Guimarães, President of ETCO

Regarding ETCO's mission to contribute to making the business environment healthier, fighting unfair practices, 2015 was a busy year, but not very productive. Unfortunately, there has been no significant progress in reducing tax evasion, in tax simplification, in the vigorous fight against smuggling, counterfeiting of products, and piracy.

The research we conducted in partnership with FGV's Brazilian Institute of Economics, on the representativeness of informal activities in the country, is proof of this. The Underground Economy Index, measured since 2003, had been falling systematically, but in 2015 it was stagnant and, according to the researchers, there are indications that it may be growing again.

This unfavorable scenario for business ethics results, in part, from the country's economic crisis. In times of crisis, especially when the government raises taxes, as has been the case, there is always a risk of increasing informality and illegality. But this deterioration also reflects the lack of determination to combat these evils.

The only advance may have been in the field of fighting corruption. It is too early to assess whether the revelations and condemnations that are giving Brazilians so much hope will have the expected effect of reducing corruption in public procurement. There is still a long battle in court.

In relation to 2016, we know that it will also be a difficult year. Our commitment is to continue participating or leading movements to combat competitive deviations that hinder Brazil's development. This is our fight.

Smuggling in Brazil: Impacts and Solutions

Brazil loses R $ 100 billion annually to the crime of smuggling, in the form of tax evasion, loss of jobs in industry and commerce and damage to the health of the population. Several sectors of the economy are severely affected by this crime, such as cigarettes, medicines, clothes, drinks, among others.

This Tuesday, the Movement for the Defense of the Brazilian Legal Market brought together a group of experts and authorities in Brasília to discuss the impacts of smuggling in Brazil and seek solutions to this serious problem.

For Evandro Guimarães, president of the Brazilian Institute of Ethics in Competition (ETCO) and one of the coordinators of the Movement, we are experiencing a delicate moment. "The government desperately needs to expand the collection, but for this purpose it is considering adopting measures that will have an opposite effect to that desired". For Guimarães, it is not possible to charge more sectors that today suffer from the loss of the market to illegality. “How to defend new increases knowing that this will generate unemployment, affect tax revenues, increase crime and destabilize companies based in Brazil? ”, Asks the executive.

See below the main highlights of the event:

The Minister of Justice, José Eduardo Cardozo, presented a brief overview of the activities carried out to combat crime in border regions, with emphasis on actions such as the Sentinela and Ágata operations. The minister also highlighted the importance of greater integration with the police forces of neighboring countries, as a way to curb illegality. Asked about the possibility of the government carrying out longer operations at the borders, the minister was skeptical: “it is clear that the ideal would be to have enough effective to block the borders completely, but this is not viable, especially from the point of view of the effective and operating costs, ”said Cardozo.

This is not what federal deputy Efraim Filho (DEM / PB) thinks, president of the Mixed Parliamentary Front to Combat Smuggling and Counterfeiting. For him, it is not only possible to close the borders to crime, but this would be another way for the government to increase the collection, without, however, resorting to further tax increases: “the minister said that the cost of an action like that would be too high. But a recent study by the Institute for Economic and Social Development of Borders (Idesf), showed that the Agate operation, if carried out permanently, would have the potential to add R $ 3 billion annually to the collection of only two taxes, the IPI and the Tax of operation.

Speaking on the industry panel, Andrea Martini, president of Souza Cruz, showed how the increase in taxes in the tobacco sector over the past 3 years has definitely contributed to the expansion of cigarette smuggling in Brazil. “In 2011, smuggling hovered around% of the market, and had remained almost stable. But with the introduction of the current tax model, which increased the sector's taxes by 110% over a 3-year period, smuggling took a leap and reached 34% of the entire national market this year, ”said Martini. For the executive, in addition to the measures to combat smuggling that must be adopted, there is no more room for tax increases, as this would have devastating effects for Brazilian industry.

Credit: Claudio Reis / Esp.CB / DA Press

Credit: Claudio Reis / Esp.CB / DA Press

06/10/2015. Credit: Claudio Reis / Esp.CB / DA Press. Brazil. Brasilia DF. The executive president of the Brazilian Institute of Ethics in Competition (ETCO), Evandro Guimarães, participates in the seminar "Contraband in Brazil: Impacts and Solutions", in the auditorium of the Correio Braziliense. The meeting is promoted by the ETCO Institute.


In the photo, Edson Vismona and Luciano Barros. Credit: Claudio Reis / Esp.CB / DA Press

Letter of intent

At the end of the event, ETCO president Evandro Guimarães delivered a letter to the minister of justice with suggestions to the federal government that could be adopted in the short and medium term, and which would have a positive effect in combating smuggling..


 Your Excellency Sir 

José Eduardo Cardozo

Minister of State for Justice

 In mid-2014, the Brazilian Institute for Ethical Competition (ETCO) created, alongside the National Forum to Combat Piracy and Illegality (FNCP), the Institute for Economic and Social Development of Borders (Idesf) and the Brazilian Combat Association to Falsification (ABCF), the Movement for the Defense of the Brazilian Legal Market, a coalition that already has more than 70 entities representing sectors of the economy affected by different types of legal deviations such as smuggling, counterfeiting, embezzlement and piracy. 

Since then, the Movement has been conducting a series of events, lectures and meetings with the objective of sensitizing Brazilian society and the Federal Government, on these problems. In 2015, for example, we held the 1st National Day to Combat Smuggling, a crime that today brings losses of more than R $ 100 billion to Brazil in the form of tax evasion, losses for the industry and even issues related to health and security of Brazilians. 

During this period, it was clear to members of the Movement that some fundamental measures, of varying complexity, would have highly positive effects in combating illegality in the country. At a time when the federal government is seeking a necessary adjustment of its accounts, these measures could, to a large extent, contribute to the country being able to leave the current moment of crisis, without, however, burdening the Brazilian population and the sector even more. productive, which today live with one of the highest tax burdens in the world. 

In this way, ETCO, on behalf of the Movement for the Defense of the Brazilian Legal Market, hereby requests the collaboration of the Honorable Minister of Justice for the measures below to become part of the government's positive agenda:

1) Greater investment in the security of our borders - A recent study developed by Idesf shows that the execution of Agate operations has a direct effect on tax collection. By analyzing the periods in which this operation was carried out between the years 2011 and 2014, and cross-checking data on the collection of only two taxes (IPI and Import tax), it was possible to verify that Ágata has a highly positive impact on the coffers. If these operations were carried out on a permanent basis, the additional collection of these two taxes would be greater than R $ 3 billion per year.

2) Maintenance of the current tax burden - In times of crisis, it is tempting to take drastic measures to try to resolve the issue in the shortest possible time. But these measures can often prove to be inefficient. This is the case with the indiscriminate increase in taxes, which at first may seem like a real panacea for Brazil's problems. However, especially in the case of sectors severely affected by illegality, it has an opposite effect to that desired: higher taxes increase the competitive advantage of illegal products in Brazil, and weaken companies that operate legally in Brazil. 

3) Brazil / Paraguay Agenda - With a GDP of around US $ 30 billion, and 'exporting' around R $ 20 billion in illegal products annually to Brazil alone, it is clear that activities such as smuggling are part of the economic reality of the neighboring country. It is necessary that Brazil, in the position of the largest economy in South America, act together with the Paraguayan authorities so that the country can develop in a sustainable way, without needing the current heterodox practices.

We can no longer remain indifferent to this situation. The illegal activities mentioned here are destroying the investment and innovation capacity of the Brazilian industry, subtracting billions of reais from public coffers and threatening the employment, health and safety of millions of Brazilians. The real commitment of all, government and civil society, is needed so that Brazil can, once and for all, face with due firmness the problems that affect us all.

Best Regards,

Evandro Guimaraes

Chief Executive Officer of ETCO


To learn more about combating smuggling, click here.

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)

ETCO participates in event on the simplification of tax actions


In March, the city of Salvador hosted the 54th edition of the National Meeting of State Tax Coordinators and Administrators (Encat), whose main theme was 'Simplification of tax obligations'. On the occasion, Evandro Guimarães, ETCO's executive president, presented the Institute to an audience with representatives of the finance departments of the 26 states of the country and the Federal District, in addition to participating in discussions on the mechanisms disclosed by the government to reduce bureaucratization of the entrepreneurship, such as simplifying the requirements for starting and operating companies.

“The simplification of our tax system will ensure the stipulation of more reasonable rates, a factor that will encourage the formalization of companies, the better distribution of taxes and, consequently, the reduction of the tax burden. In short, everyone has to win ”analyzes Guimarães.

Another important point discussed at the meeting was the modernization of the Tax Authorities through the adoption of a series of digital tools that provided the evolution of the tax collection process and, consequently, the greatest efficiency in combating tax evasion. “This process started with the implementation of Electronic Invoice (NF-e) and today includes several other news, the most recent being the Electronic Consumer Invoice (NFC-e) ”says executive coordinator of Encat and fiscal auditor of Sefaz-BA, Eudaldo Almeida.