Loss from cigarette smuggling reaches BRL 10.2 billion in 2021

Brazil lost, just last year, R$ 10.2 billion with tax evasion resulting from illegal cigarettes sold in the country. Of every 100 packs of cigarettes sold in 2021, 48 were illegal, mainly smuggled from Paraguay.

The data are part of an annual survey carried out by Ipec for the FNCP (National Forum Against Piracy and Illegality), which also shows that tax evasion in the last ten years reached R$ 86 billion.

The formal market for cigarettes was responsible for the collection of R$ 15.1 billion last year, with IPI, PIS/Cofins and ICMS, but it could be R$ 25.3 billion, if there was no illegality.

The share of Paraguayan cigarettes in the national market remained stable compared to 2020 — when 49% of the packs sold were smuggled or illegally produced in Brazilian factories — and below the worst moment, in 2019. That year, 57% of cigarettes were smuggled.

The rise in the dollar and the Covid-19 pandemic, which caused the closure of borders, lockdown in Paraguay and restrictions on the movement of people, are pointed out as factors that hindered the entry of cigarettes made in the neighboring country and consumption in Brazil.

“From 2020 onwards there was an approximation of prices impacted by the dollar and the pandemic. The legal grew over the illegal, which is good, for having increased the collection by more than R$ 1 billion. And it showed that, if prices are close, the smoker ends up opting for the legal one”, said Edson Vismona, president of the FNCP.

The Ipec survey also showed that four of the ten best-selling brands in Brazil are Paraguayan. Eight, with 15%, is the second best seller, followed by Gift (9%). San Marino (4%) is seventh, while Fox (3%) ranks ninth.

According to 88% of the 50,975 smokers interviewed between July and November by IPEC, illegal cigarettes were purchased through formal channels, such as bakeries, bars and cafeterias. Smokers aged between 18 and 64, who lived in cities with more than 20,000 inhabitants, were heard.

It is easy to differentiate a legal product from a contraband, according to traders interviewed by sheet and the FNCP. In addition to the packaging of national cigarettes meeting Anvisa (National Health Surveillance Agency) requirements, such as a seal, the one made in Paraguay usually has the text in Spanish.

There are also cases in which the messages on the back of the package, such as that cigarettes cause cancer, were replaced by pictures of women in bathing suits.

For Vismona, an alternative to curb smuggling, in addition to border actions, is to create mechanisms to reduce the price margin between the two products, which in 2021 was 65%. It reached 115% ten years ago.

One of them would be to raise the tax in Paraguay, which today is 20%, far below the 70% to 90% practiced in Brazil, varying from one state to another.

“Bolivia, which has the second lowest, charges 39%, which is double that of Paraguay. Raising the tax there would be essential, as would Brazil create a confrontational brand, allowing Brazilian manufacturers to sell a brand, only one, with a more popular price, with a lower tax. With this margin close, the smoker will opt for the legal one. He only buys the illegal one because it is cheaper”, said Vismona.

THE sheet contacted the Paraguayan embassy in Brazil to question the taxation of cigarettes in the neighboring country, if there is any proposal under discussion on the subject and the criticisms made by the FNCP, but there was no response until the publication of this text.

The proposal is under discussion in the sector, to be presented to the Federal Revenue and the Ministry of Economy, for evaluation. There is no deadline for this.

The destruction of smuggled cigarettes seized in the country hit a record last year, according to the IRS.

307 million packets of seized cigarettes were destroyed, 35% more than in the previous year. The 9,215 tons are equivalent to 710 full trucks, with an estimated value of R$ 1.5 billion.

When possible, according to the IRS, the destroyed loads are transformed into raw material to produce fertiliser, fertilizers or pesticides or used as a source of energy in burning, for example.

Of the 48% share of illegal cigarettes in the Brazilian market, 39 percentage points refer to smuggled brands, while the other nine points are from clandestine factories installed in Brazil, which often falsify Paraguayan brands already established in the country.

In less than a decade, around 20 industries of the kind were spotted, with 9 of them closed just last year in places like the interior of São Paulo and Rio Grande do Sul.

The Ipec data also show that the cigarette market is stabilized in the country in relation to the possibility of tax collection. Since 2019, the amount that could have been raised ranges from BRL 25 billion to the current BRL 25.3 billion.