Small and micro enterprises that opt for a special tax dispensation in Brazil are more than twice as likely to survive their first two years than that don’t opt for the dispensation, a new study reveals.
The study, by Brazil’s small business agency Sebrae, reveals that 83% of small and micro firms that started in 2012 and subscribed to Simples tax, survived in their first two years in business – compared to 38% of those that paid ordinary business tax (by presumed profit or real profit).
As of the middle of last year about 10.9 million businesses were now subscribed to Simples, which was introduced in 2006 (although it had been running in another form since 1996) and offers various lower tax rates according to a firm’s turnover.
It also reduces the tax burden that firms face (which can takes firms an average of 2,083 hours a year according to the World Bank) as it brings together eight tax types. Firms only need complete one tax form a month, instead of eight for those outside of Simples.
Currently the government provides a long list of those kinds of firms that can take advantage of the tax form. Sebrae is fighting to expand the tax types to more forms of small businesses.
The research also revealed that between 2012 and 2016 the number of firms opting for Simples has grown by 64% - from 7.1 million to 11.6 million.
The growth has mostly been driven by the registration of those signing up for Microempreendedor Individual, a registration form for two-man firms, which alone grew 150% during this period.
Brazil is slowly recovering from its worst ever recession, which has dragged on since 2015. Last year senators scaled back a plan by Sebrae to increase the threshold under which firms can benefit from Simples (see this earlier post).
Sebrae had wanted senators to vote to increase the annual revenue threshold under which firms can benefit from the tax, to 7.2 million reals ($2.2m) from its current 3.6 million.
However senators instead voted to increase the threshold by smaller amount, to 4.6 million reals after concern that offering too generous tax cuts could rob the fiscus of much needed revenue.
The latest amendments were to come into effect in the middle of this year, but have been pushed back to 2018, by the Senate.
'Biggest programme in world'
On Tuesday Sebrae president Guilherme Afif Domingos (pictured above) told a senate committee that Simples has helped incentivise businesses to register and has generated employment.
In addition he said over the last 10 years Simples has grown 10 times faster than the growth in all federal taxes collected.
“It can be considered as the biggest programme in the world for the social and economic inclusion,” he said, adding that in the last 10 years small and micro firms have created 10.7 million jobs while large and medium-sized firms have closed over a million jobs.
Simples is a laudable effort. Yet it perhaps demonstrates more than ever the gargantuan tax system that continues to bedevil entrepreneurs who operate there. Much more work lies ahead for Brazil in reducing the weight of centuries of unnecessary bureaucracy.
Timm is a South African who writes on small business in emerging economies. For more view this Sebrae presentation (in Portuguese). Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a