A strange thing happened in Brazil last month. Amid a worsening economy the government announced that collections under a small business tax were up almost seven percent.
Brazil's small business secretariat last month reported that tax collected under Simples - which offers certain small and micro firms a reduced tax rate - were up 6.7% in the first half of 2015 over the same period last year.
In addition small and micro firms added a further 116,500 jobs between January and May, despite the economy having shrunk during this time.
This doesn't seem to make sense. For one unemployment is climbing - it hit 8.1% in the quarter that ended in May, the highest since 2012, according to Brazilian household statistics. And this week Brazil's Central Bank said it expects the economy to shrink by 2% and for growth to be flat for 2016.
Are more Brazilians being pushed started a business out of desperation or are small businesses yet to feel the full effect of the country's current downturn?
Small Business Minister Guilherme Afif Domingos (pictured above) attributes the "Chinese growth" experienced by small businesses in Brazil is an example of the power of the sector.
In August last year President Dilma Rousseff signed new rules for Simples into law, greatly expanding the categories of business types that can benefit from the tax form. More than 10 million businesses are subscribed to the Simples tax system.
A new government proposal seeks to double the turnover threshold under which certain firms from the commerce and services sectors can benefit - from the current 3.6 million reals to 7.2 million reals and to 14.4 million reals for manufacturing firms.
The potential is there to greatly expand the tax net as Brazil still has a sizeable informal sector - despite having fallen from 27% of the economy in 2007 to 16.1% last year (when it accounted for about 826 billion according to the Brazilian Institute for Ethical Competition and the Getulio Vargas Foundation).
And despite concern that the already cash-strapped government could lose valuable tax revenue, an earlier study by the Getulio Vargas Foundation found that a 4.2% growth in small business revenues would be sufficient to offset the loss through the lower tax rates offered by the tax form.
The new proposal forms part of a government plan (dubbed "growth without fear") to reduce bureaucracy (including making it possible to register a business in five days) faced by small businesses. The plan is for the new Simples to come into effect next year (see this earlier post and this one for more).
Tax breaks for all
Brazil is renowned for granting tax exemptions to favoured groups. In addition those that have benefited most from the new Simples rules have been lawyers, insurance brokers and medical consultants - hardly the kind of businesses renowned for sparking entrepreneurial growth in a country.
Time is running out for Domingos to introduce the new Simples rules (in May he said he expects them to come before Brazil's congress after July). His ministry was last week cited by a Brazilian daily that may be given the chop by the cash-strapped government to save money.
But the pressure to offer more tax breaks would be eased if the government did more generally to remove onerous red tape that festers in almost any transaction one has with the public sector - some in the private sector even enjoy stacking on reams of rules. Trimming all these will be a massive undertaking.
Timm is a South African who writes on small business in emerging economies. He lived in São Paulo from in 2014 to June this year. Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a