The risk of a return to tax fraud in the beverage industry

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IRS suspends production control system that had managed to reduce tax evasion - replacement is still unknown

img4_SICOBEAt the end of last year, the federal government abandoned one of the most successful physical control systems for beverage production in the world, which had managed to drastically reduce tax fraud in this segment. ETCO's executive chairman, Edson Vismona, said he was concerned about the impacts of this decision. "The previous equipment operated in 320 factories in Brazil and was decommissioned on December 13, 2016. The Revenue has publicly committed itself to developing a new system, but it is important that this is done with priority and speed," he says.
According to data from the Federal Revenue, the old system increased the federal tax collection on the beverage sector by 40% after its installation in 2008. There were R $ 4,5 billion more for public coffers. "It is undeniable that the absence of physical production control can open space for certain players in the beverage sector to evade taxes", warns Vismona.
History justifies this concern. Until the early 2000s, the beverage industry was the scene of many cases of companies that made tax evasion their business strategy - and that managed to grow very fast in the market. It is easy to understand why they got along so well. Drinks are a product of very high demand (over 25 billion liters per year) and tax burden
high (above 50%). A company that evades taxes is able to quickly sell all of its production by charging impractical prices for those who correctly collect taxes.


In 2003, tax evasion was estimated at 30% in the soft drink production and distribution chain and 15% in the beer chain. That year, the government started to turn the tide. First, it required companies to install flow meters on their production lines; and in 2008 the model for the adoption of the Beverage Production Control System, Sicobe, evolved, which further improved inspection. “Online, the system sent the Federal Revenue, directly from the factories, information about the manufacturer, the brand, the date of manufacture of the drink, the volume and type of packaging, thus allowing the coding of products that left the line production, ”says Vismona. Sicobe was extinguished amid the Federal Police's Sphinx operation, launched in early 2016, which raised suspicions about the bidding process that resulted in the hiring of the company responsible for implementing the system.
When it announced the end of a model before its replacement was ready, the government said it believed that another newly created mechanism could prevent tax evasion. He was referring to the implementation of the so-called Block K of SPED (Public Digital Bookkeeping System), which requires companies to send detailed data to the Revenue on all their input purchases. The system began to be used earlier this year, still in a simplified version. But the ETCO president has another opinion. "We don't believe it is enough," he says. The new physical control system being developed by Casa da Moeda provides for much more detailed monitoring of production lines, using the technology known as QR Code. But there are doubts as to the need for so much complexity, costs and implementation time. "The original schedule presented by the Casa da Moeda predicts that 100% of the beverage factories will have a new equipment installed only in March 2019", recalls the president of ETCO. "Given the relevance of this control, this period should be revised, otherwise it will be almost two years without an effective inspection mechanism, which can result in the loss of billions of reais to the public coffers."

Professor, what is ethics for?

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ETCO project seeks to awaken reflection on the theme in schools across the country. First partnership was signed in the São Paulo Department of Education


img1_ética for young peopleOne of ETCO's main initiatives in 2017 is the project Youth Ethics, which seeks to unite the Institute with school networks, especially public ones, to stimulate reflections on ethical behavior among students. The program was launched on June 19, at an event at the São Paulo State Department of Education, with whom ETCO signed the first partnership to take it to schools. And it had the support of the São Paulo State Ombudsman and the São Paulo Public Administration Transparency Council.
The main focus of the project is teachers and students from high school or from the last years of elementary school - which, in the state public system of São Paulo alone, represents more than 2 million students. The objective is simple: to propose to teachers and students to dedicate some classes to activities that stimulate critical thinking and awareness of the importance of ethics in society. To this end, ETCO carried out studies to define the best way to impact young people, hired specialists to prepare support material for teachers and is investing in the search for new partnerships such as the one established in São Paulo and in the dissemination of the project, to generate the adhesion of teachers and expand their reach.
ETCO's executive president, Edson Vismona, says that the project fulfills a responsibility that was attributed to him by the Institute's Board of Directors in 2016, when he was chosen for the position. “I was asked to, in addition to continuing to defend competitive ethics, reinforce one of the fundamentals of ETCO, which is the defense of ethics in broader terms. In this sense, we chose young people as our target audience: after all, there is no way to transform Brazil's ethical standards without paying special attention to the formation of new generations ”, explains Vismona.


Based on work with young people, the project seeks to take the debate on the importance of ethics to the whole of society. The first step was to understand what this audience thinks about the topic. To this end, the Institute hired a survey by Datafolha, which brought several valuable insights. He found, for example, that young people are aware that the problem of lack of ethics is not restricted to "others", but also affects their closest circles. The worst score is given to others: 90% consider “society” to be little or not ethical and 74% judge the same thing in relation to friends. But the assessment of their own family and of themselves is also mostly negative: 57% in both cases. The research also pointed out that teachers are an important ethical reference for young people. They received the second best score in this regard, behind the firefighters only. Another important revelation was the opinion of young people about what kind of action can have the most impact in changing the ethical standard of Brazilians and in building a more honest society. Among several possibilities, the most suitable was the proposal to stimulate more conversations and debates on the theme, whether at home, with the family, or in contact with friends - which includes the school. “The Datafolha survey consolidated our belief,” says Vismona. “We concluded that ETCO could generate a multiplier effect by engaging educators, who are seen as one of the greatest ethical references for young people, in the initiative to include or expand the discussion of this topic with their students.”

Click here and access the full survey on the Ethics for Youth website

The next step was to create material that could assist teachers in this task. ETCO hired a specialized team to produce and make available on the internet a set of suggestions for ethics activities for the classroom. This work involved a series of precautions, starting with the determination not to create a “moral lessons” guide, as the consultant Denise Hirao, responsible for preparing the material, says. “We did not intend to 'teach' what is or is not ethical. We create activities with the aim of provoking reflection among young people about how they formulate their own ethical parameters and the reasons why they obey them or not ”, she explains. Another concern was to create interesting lesson proposals for young people based on the most current pedagogical recommendations. In this sense, we sought to bring the theme closer to the students' reality and to use modern resources such as cartoons and plots that promote student participation and interaction between them. In one of the activities, for example, young people are divided into different groups to judge the action of a civil servant who diverted a medication from a health center to save the life of a neighbor. In another, they face the dilemma between stopping buying textbooks for all students or turning to salespeople who charge much lower prices, but adopt criminal practices. Themes such as corruption, bullying and human rights are also present in the material.
The challenge for the coming months is to expand the scope of the project. At the São Paulo Department of Education, the project has broad support. The state secretary, Renato Nalini, signed a partnership with ETCO foreseeing several initiatives to spread the activities in schools in São Paulo. “Stimulating reflections on ethics among young people is an extremely important mission”, evaluates Nalini.
The first event of this partnership occurred together with the launch of the project: a debate on ethics in the school that brought together names such as the Assistant Secretary of Education, Francisco José Carbonari, the São Paulo State Ombudsman, Gustavo Ungaro, and educators Eunice Prudente and Adriano Marangoni, in addition to the ETCO president.
The launch of the project and the results of the survey carried out by Datafolha were disseminated by several media outlets, helping to expand its impact and attract the interest of other educational bodies.
The expectation is that new partnerships will be closed in the second half and that the initiative will be disseminated throughout the country.


The activities that ETCO created to stimulate the debate on ethics in the classroom are available on the website


Why Brazil needs to join the LEGAL FUEL MOVEMENT

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Initiative supported by ETCO seeks to mobilize society against increasing fraud in the sale of gasoline, alcohol and diesel


LEGAL FUELMost Brazilians and many authorities are still unaware of a serious problem that has been occurring in Brazil: after a period of reduction, fraud in the fuel sector has grown again. As a result, there has been default
in the payment of taxes, higher incidence of selling stolen cargo, product adulteration, with a mixture of cheaper substances and with lower taxation, and also fraud in the meters of the supply pumps - the so-called low pump. These practices degrade the competitive environment and harm everyone: consumers, honest businessmen, the state that fails to collect taxes and the population that depends on services financed by taxes, such as education, health and security.
Alerting the population about the existence and growth of these problems and joining forces to combat them is the purpose of an action supported by ETCO and led by the National Union of Fuel and Lubricant Distribution Companies (Sindicom). This is the Legal Fuel Movement, which started to be prepared in November 2016 and was officially launched in August 2017. “This sector is very affected by unfair practices”, says ETCO's executive president, Edson Vismona. "In addition to the impacts of the economic crisis, the right companies suffer from having to compete in such a price-sensitive market with dishonest competitors who resort to the most varied illicit devices to sell cheaper."

In the last few years, cases of fuel adulteration, cargo theft and low pump have been increasing, which harm honest competitors, consumers and the country as a whole.

LEGAL FUELThe director of Strategic Planning at Sindicom, Helvio Rebeschini, explains the reasons that led to the creation of the Movement. “As of the end of 2014, we noticed a deterioration in the market from a competitive point of view and the growth of new illegal practices, different from those that had occurred in the past. The disease is now different, and the old remedies no longer work ”, explains Rebeschini. “At the same time, we note that there continues to be a high degree of ignorance among the population, the media and authorities about the importance of our segment to people and the damage that these frauds cause to the country. The Legal Fuel Movement aims to raise awareness among society , join forces and implement a set of actions to curb these practices. ” Fraud is not new in this segment. They were uncommon until the early 1990s, when there was strong State control over the distribution and sale of fuels, which were priced at a fixed price. The deregulation of the sector, which on the one hand generated more competition, also started a wave of fraud from the end of the decade. At that time, one of the most serious problems was tax evasion, which subsequently evolved into a period known in the sector as the “war of injunctions”: to continue to evade, some companies entered the courts challenging the new regulatory rules and the tax laws that were being implemented by the regulatory agency and the tax authorities. Another common problem was the adulteration of
fuels with a mixture of less taxed and therefore cheaper products, which made selling prices artificially
Initiatives that had the support of ETCO and Sindicom managed to revert this situation around 2005. Rebeschini cites, among the most effective, the adoption of tax substitution in the sector, which started to concentrate tax collection in the first link of the production chain. , represented by fuel producers and importers. Another important instrument, according to
the president of ETCO, was the implementation of the Electronic Invoice, whose development had the effective participation of the Institute.
“This was one of the greatest advances in combating tax evasion in all segments,” says Vismona.
The battle against adulteration included actions such as mandatory orange coloring of anhydrous ethanol, a type that is mixed with gasoline, and the adoption of tougher laws against criminals. In São Paulo, for example, since 2006 companies accused of adulteration are subject to the loss of state registration.
“Fraud never ceased to exist, but between 2005 and 2013 they were more or less controlled”, recalls the director of Sindicom. The deterioration seen in recent years has a number of reasons. “In part, it has to do with the economic recession, with impacts on demand and cost pressure. This ended up putting pressure on companies and taking some of them to illegality ”, says Rebeschini. “And the fiscal crisis also caused restrictions on the public budget and ended up weakening the inspection bodies. "
But the main factor was the emergence of the figure of the persistent tax debtor, a phenomenon that began to be observed in 2010, but became more acute in the following years. This is a new form of judicial battle, now no longer in search of injunctions to allow tax evasion, but to sustain deliberate tax defaults. “The fraudster realized that owing taxes, even on purpose and for long periods, does not cause him very serious problems. He knows that if he adulterates or evades, he is criminalized, so he adopted the motto 'I must, I don't deny it and I don't pay'. Usually, they are companies without equity, partners that are not always true and that have nothing to lose ”, explains the director of Sindicom. These companies rely on the slowness of administrative and justice processes and the lack of updating of the legislation that differentiates the eventual debtor of taxes from the defaulting debtor, who does
that practice your business strategy. The remedy to combat this new evil involves the regulation of a constitutional provision that allows different treatment against such taxpayers (*). According to Rebeschini, the incumbent debtor ends up triggering other frauds. “It's a ripple effect or a wave effect. A gas station buys fuel from a distributor that pays no taxes and reduces its prices. Its neighboring competitors, in order not to lose customers, give up their profitability for as long as they can take it, from then on they close their doors or sell the business to a fraudulent competitor or end up going to irregular trade. The unscrupulous enter the business of stolen cargo, adulteration of fuel, "low pump" and so on, "he observes.
In addition to harming consumers and honest competitors, these frauds divert billions from public coffers. Together, ICMS evasion and defaults produce an annual loss of R $ 4,8 billion, according to a study by the Getúlio Vargas Foundation. Money that could be used to build or improve hospitals, schools, security and other public services.

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