Brazil’s Clothing Stores Under-Report Sales by Estimated 60%

In Brazil, small clothing manufacturers are struggling to compete with larger companies that pay zero taxes and can sell their products at a lower cost. This unfair competition is forcing many small business owners to operate in the informal economy, under-reporting their sales and evading tax payments.

The Struggle is Real

“I’m competing against clothing makers who pay no taxes and can sell for less,” said Inez Striquer Medri, a small manufacturer of clothing who employs 22 people. “It’s hard to stay in business when they don’t have to follow the same rules as I do.”

Many small businesses like Medri’s are forced to operate outside the formal economy due to the lack of transparency and accountability in Brazil’s tax system.

The Black Market Thrives

The informal economy has led to a thriving black market, with vendors selling counterfeit goods and evading tax payments. On Rua 25 de Marco in Sao Paulo, vendors set up shop outside small businesses, selling everything from pirated DVDs to fake luxury goods.

“Everyone is making money under the table here. Some are selling fake goods,” said Antonio Nogueira, a local businessman who is running for City Council.

The Government’s Efforts

The Brazilian government has taken steps to combat tax evasion, including increasing the powers of tax police and monitors. However, many business owners feel that these efforts have been ineffective in curbing the problem.

“We need major changes, or small middle-class business owners won’t be able to handle the burdens of staying in business,” said Viviane Pizzol, owner of a minimarket in Parana state. “We’re stuck in a cycle where high taxes hurt businesses, and few tax evaders are punished, leading to social acceptance of tax evasion.”

The Impact on Small Businesses

The problem is particularly acute for small businesses, which struggle to compete with larger companies that can afford to pay higher taxes.

“We need major changes, or the small middle-class business owner won’t be able to handle the burdens of staying in business,” said Silvano Gianni, president of the Small Business Association. “We’re expecting the new law to reduce tax evasion and give small businesses a fighting chance.”

The Way Forward

The Brazilian government has passed a law giving tax breaks, lower interest rates, and other benefits to small businesses. However, many experts believe that more needs to be done to combat the problem.

“The informal sector is a major obstacle to economic growth in Brazil,” said a McKinsey report. “If Brazil reduced its informal sector, per capita income could grow by 7% annually.”

In the meantime, small business owners like Medri are left to struggle against an unfair competition that seems to have no end.

“I’m competing against companies who don’t pay taxes and can sell for less,” she said. “It’s hard to stay in business when they don’t have to follow the same rules as I do.”