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 

14/09/2016

An 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.