The number of registered businesses in Brazil leapt from 2.5 million to 11.6 million between 2007 and 2016 following the introduction of a special small business tax regime, charges the country's small business agency Sebrae.
Sebrae this week shared the results of a study that revealed that in December 2007 Brazil had 22.7 million business owners, 2.5 million (11%) of which were in the formal sector. By the end of last year the percentage of registered firms stood at 50% of the 26.1 million firms in the country.
Sebrae expects the number of small businesses to continue to climb and estimates that there will be 17.7 million registered firms by 2022 - or 63% of the expected 28 million firms.
The number of registered firms include a special category for one-man micro entrepreneurs (referred to as microempreendedores individuais) introduced in 2009 which account for the majority of these entities (see this post), to registered small and micro firms.
However the agency attributes much of the radical increase in formalisation to the onset of the small business tax regime Simples Nacional in 2007.
Sebrae President Guilherme Afif Domingos pointed out that the increase in formalisation has also had a direct impact on tax collections.
The federal tax contribution from the Simples Nacional tax regime has almost doubled between 2007 and 2016 – from 4.2% of all taxes, to 7.9%. In 2008 the tax collection from Simples stood at $41bn and this climbed to $73bn by 2016.
“I don’t know any other segment of the economy that has seen its participation in tax collection double. When Simples was created many people alleged that the government would lose a lot of tax. Today we have the proof that the more we simplify and reduce the tax burden the more formalisation and tax collection grows.”
Earlier this year Sebrae released figures that reveal how the Simples tax regime has helped to double the survival of firms subscribed to the tax form (see this post).
As the country begins to slowly emerge from an over two-year recession the agency is fighting to ensure that tax breaks remain in place for small businesses.
Yet the real work will be to simplify with more haste the country's byzantine bureaucracy, of which Brazil has barely begun to do (see this post). A bigger effort is needed.
Timm is a South African who writes on small business in emerging economies. Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a