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.

Brazil stops reducing informality

After 12 years of falling, the Underground Economy Index stops due to the recession and the increase in taxes



The ETCO-Brazilian Institute of Ethics in Competition and the Brazilian Institute of Economics of the Getulio Vargas Foundation (IBRE / FGV) released on November 30 the Subterranean Economy Index (IES) for 2015. According to the survey, the informal market will move R $ 932,3 billion this year. The value represents 16,1% of the Gross Domestic Product (GDP), the same percentage verified in 2014. The IES measures the size of activities not declared to the public power, such as smuggling, piracy, tax evasion and informal employment.

This is the first time, in 12 years of research, that the informal economy has not retracted in the country. During this period, the index decreased by 4,9 percentage points, the result of a set of factors, such as the formalization of employment and the growth of the economy.

Curve change

According to the study's authors, stability in 2015 may mean the start of the change in the index curve. The current economic scenario, which includes economic difficulties, rising unemployment and increasing the tax burden, should increase the participation of the informal economy in the coming years.

Economist Samuel Pessôa, a researcher at IBRE / FGV, explains the upward trend: “The crisis started in the second quarter of 2014 and unemployment only grew strongly this year. It currently stands at 8,9% and is expected to reach 11% next year. It is practically inevitable that part of this workforce will migrate to the informal economy ”. According to Pessôa, as long as the economic situation does not undergo structural adjustments, the tendency is for the index not to fall again.

The ETCO president recalls that the solution that governments have been adopting to face the fiscal crisis, based heavily on tax hikes, ends up further increasing the appeal of the underground economy. “The complexity of the tax burden is another factor that leads to informality”, says Evandro Guimarães.

In highly taxed segments, such as cigarettes, for example, today almost 40% of sales are the result of smuggling. Even so, state governments, like the one in São Paulo, are increasing the tax burden even more.

The partnership between ETCO and IBRE / FGV to monitor the underground economy provides the country with the main indicator of the evolution of informal activities. “Knowing the problem is the first step in order to face it”, explains Evandro Guimarães. According to him, it is important that there are more government initiatives to contain the problem. "We need measures capable of simplifying the tax system, in addition to structural changes in society so that this economic model does not harm those who act within the law, following all the rules and paying all taxes," he says.

How the index is calculated

The IES is defined based on a set of static data that assess informality in employment and the relationship between the size of the economy and the use of cash (underground activities tend to use less bank transfers). One of the main sources of information is the National Household Sample Survey (PNAD).




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. 

Generation of formal employment in Brazil has worst April of the historical series

SAO PAULO (Reuters) - Brazil closed 97.827 formal job openings in April, the worst result for the month in the historical series and by far frustrating the expectations of analysts, according to data from the General Register of Employed and Unemployed (Caged) released by the Ministry of Labor. I work this Friday.

A Reuters survey showed that the median of expectations was to open 54 jobs. The Ministry of Labor historical series runs until May 1999.

In March, 19.282 positions had been created with a formal contract, without adjustments.

The April result was mainly influenced by the closing of jobs in the manufacturing, civil construction, commerce and services sectors. Ten of the twelve segments of the manufacturing industry had a negative performance in the period.

source: Reuters (22/05)


To access the full story, click here

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

Labor market ranges from formal to informal

According to the Brazilian Institute of Geography and Statistics (IBGE), the average percentage of workers with a formal contract in relation to the population employed in other jobs, including informal jobs, increased by 12 percentage points in 19,9 years, from 39,7 percentage points % in 2003 (7,3 million), to 59,6% in 2014.

The data are part of the Monthly Employment Survey, surveyed in the metropolitan regions of Recife, Salvador, Belo Horizonte, Rio de Janeiro, São Paulo and Porto Alegre, where the study points out that from 2013 to 2014 the number of workers with the formal portfolio went from 50,3% (11,6 million) to 50,8% (11,7 million), an increase in relation to informal work.

Source: The State of Rio de Janeiro (24/03)

To read the full story, click here

Informality stops falling

The underground economy, that is, the set of activities intentionally not reported to the government in Brazil, has been shrinking year after year, since it was estimated in 2003 by the Brazilian Institute of Ethics in Competition (ETCO) in partnership with the Brazilian Institute Economics of Fundação Getúlio Vargas (FGV / IBRE). This reduction is credited to the improvement of the institutional environment, which has benefited in recent years from advances in the performance of the economy and other factors that contributed to the formalization of companies and employment ties.

In the most recent estimate of the institutes, released on the 12th, however, a worrying trend was observed. The 2014 Underground Economy Index was estimated at 16,2% of GDP, just 0,1 percentage point lower than that measured in 2013. In absolute numbers, it is R $ 833 billion, compared to R $ 787 billion in 2013. This is the smallest reduction in the index ever seen since the beginning of the survey (in 2003, the index was 21%). According to the experts responsible for the index, the trend for the coming months is that the pace of decline in informality will slow down, especially if the economic growth forecasts observed so far are confirmed.

The trend towards stabilization in the reduction of informality indicates that some corrections are necessary at this time. If, until now, tax exemptions promoted to alleviate the tax burden in various sectors have collaborated with the formalization of the economy, from this moment on, tax simplification may have a more comprehensive role in reducing informality. There is no denying the importance of exemptions for the economy as a whole. But, as far as can be seen, its effectiveness with regard to formalization tends to stabilize. Thus, tax simplification can enhance the effects of tax relief more broadly on the productive sectors of the economy.

It is also necessary to continue and accelerate the structural changes that we seek for society, such as, for example, increasing the educational level and reducing the unemployment rate. The growth of the formal labor market is close to its limit. Two major bottlenecks hinder the continuity of this evolution. One of them, well known, is the labor laws that bind the economy. The other, less obvious, but with a lot of impact on reducing informality, is the level of education of Brazilians.

In the past decade, informality in the labor market has dropped by more than 10 percentage points, from 33% to less than 22% of the total employed population. The increase in the average education level of Brazilian workers can account for up to 64% of this drop. The positive relationship between schooling and formalization brings positive perspectives with regard to reducing informality in the future.

If, on the one hand, softening rigid labor laws is an increasingly essential mission, investing in education is much more than a goal, it is an obligation for the nation to become more competitive and position itself better among the main economies in the world . Finally, it is necessary to simplify and rationalize the tax system; modernize the collection system and make compliance with the law less painful for the population.


*Evandro Guimaraes is executive president of the Brazilian Institute of Ethics in Competition (ETCO) and Fernando de Holanda Barbosa Filho is an economist and researcher at FGV / IBRE