Tax Evasion in Brazil
Brazil is one of the biggest tax evaders in the world. The absence of stricter penalties for violators is one of the explanations for this phenomenon. This article will bring a wider view of the problem, and will explain how the Brazilian Law sees this matter.
The Brazilian Constitution basically defines tax evasion as the use of illegal means to avoid the payment of duties. Among these means are the omission of information, false declarations, and the modification of documents and invoices in order to pay less tax.
Basically, individuals evade taxes by hiding information when declaring their IRPF, which is the Brazilian income tax. Companies evade taxes when declaring their income tax, when they hide information on selling receipts or when the declared value of the receipts are lower than the real ones charged.
Current Situation
Brazil is one of the biggest tax evaders in the world according to a ranking published in 2013 by Tax Justice Network, an entity that research and analyze tax regulation worldwide. The study shows that around 13.4% of the Brazilian’s gross national product (GNP) was evaded, only behind Russia.
Also, the country is ranked only after the United States when the subject is the amount of tax lost as a result of the shadow economy. However, this result is not quite proportional, since the size of the American economy is way bigger than the Brazilian’s. In Brazil, over USD 280 million was not correctly tributed in 2013 due to informal economy, black market sales, and tax evasion, as seen in the chart below:
| COUNTRY | GDP (USD MILLIONS) | SIZE OF SHADOW ECONOMY (%) | TAX BURDEN (%) | TAX LOST DUE TO SHADOW ECONOMY (USD MILLIONS) |
| U.S. | 14,582,400 | 8.6% | 26.9% | 337,349 |
| BRAZIL | 2,087,890 | 39% | 34.4% | 280,111 |
| ITALY | 2,051,412 | 27% | 43.1% | 238,723 |
| RUSSIA | 1,479,819 | 43.8% | 34.1% | 221,023 |
| GERMANY | 3,309,669 | 16% | 40.6% | 214,996 |
BRL 400 billion was the complete amount of taxes evaded in Brazil in 2013, according to quantocustaobrasil.com.br. The website is organized by the Union of prosecutors of the National Treasury, known as Sinprofaz, or Sindicato Nacional dos Procuradores da Fazenda Nacional.
Supervision
The tributary supervision in the country is made by Receita Federal, the Brazilian Federal Revenue. Even though the agency has many critics, income tax credit in 2013 set a new record: nearly BRL 190.1 billion was accumulated due to the government body. The amount represents growth, equivalent to 63.5% in comparison to 2012.
Around BRL 181.5 billion of this collected amount corresponds to companies. Industries and financial services were affected the most, responsible for over BRL 74 billion and BRL 42 billion, respectively. The part that corresponds to individuals is equivalent to BRL 8.6 billion.
In 2013, a total of 329,000 processes were raised by Receita Federal against possible evaders, a growth of 9.7% compared to 2012. These numbers show that the chances of being caught for this crime are growing. The government body claims that more modern fiscalization techniques are being utilized to cross check violators' information.
Punishment
Specialists state that some of the causes for Brazil's high level of tax evasion are a historically weak fiscalization and light punishments for the convicted companies and persons. Also, it is a common practice among the Brazilian companies and population to claim that the amount of taxes paid is already too high compared to the quality of the services presented, such as healthcare and public transportation.
The first penalty for tax evaders is a fine of variable value: 20% of the amount in question if the evader spontaneously declares his fault, and around 75% if fiscalization detects the irregularity.
This situation might also be considered a crime and get reported to Ministério Público. In this case, the Brazilian Constitution sets that the penalty for tax evasion varies from six months to two years of detention. It also requires a fine that varies from two to five times the amount to be paid.
If a company is considered guilty of this crime, the penalty is applied to every person that directly or indirectly contributed to the practice of tax evasion.
If the convicted person is a primary offender, the penalty is substituted by a fine of ten times the amount to be paid. The fine might be raised if the offender holds a public post or had the obligation to fiscalize tax payments.
Exits for evaders
In order to recover the money that was initially lost due to tax evasion, the Brazilian government has chosen to offer some alternatives for those that have any kind of tributary debt. Some programs allowed companies to pay their debts without the charge of penalties and interest rates.
REFIS, the Brazilian Tax Recovery Program, is one of the biggest initiatives with the purpose of avoiding evasion and raising the tax collection. It essentially consists in an installment of the remaining debt.
The first program of this kind was released in 2000, and until the end of 2013, a total of four REFIS were launched by the Brazilian government. The difference between them was, basically, the prize for companies to apply for and the number of months wherein which each business will have to pay their debts.
This measure is a bit controversial, though. Many argue that this is the only way to lower tax evasion and raise the collected amount. However, the opposition claims that programs like REFIS, somehow, give a reward to those who do not honor their debts.