[PPT] - South-South Experts Knowledges Sharing Forum July 2018 Manila, PowerPoint Presentation

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South-South Experts Knowledges Sharing Forum

July 2018 Manila, Philippines

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Mauro Oddo Nogueira

Researcher

MSE Simplified Regime

July 2018 Manila, Philippines

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Challenges 5 Conclusions 6 MSE Simplified Regime Evolution 4 Entrepreneurship in Brasil 3 Informality and Semiformality 2

Summary

Contextualization 1

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Título 1 Contextualization

1

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MSE Simplified Regime

Brazilian context:

Population: 208 millions Economically active pop: 112 millions Federation:

26 states + 1 Federal District 5.570 municipalities All of them with some autonomy in taxes and business regulation

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MSE Simplified Regime

Brazilian context:

Public health and basic and secondary education: universal coverage (1988 Constitution) Social Security = Public pension system

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MSE Simplified Regime

GDP Growth rate (%)

Source: IBGE

6
4
2

2 4 6 8 10

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MSE Simplified Regime

Gini Coefficient (2001 - 2017)

0.51 0.52 0.53 0.54 0.55 0.56 0.57 0.58 0.59 0.60

Source: IBGE

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MSE Simplified Regime

Average unemployment rate (2010 – 2018)

Source: IBGE.

2 4 6 8 10 12 14 2010 2011 2012 2013 2014 2015 2016 2017 2018*

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MSE Simplified Regime

Labor conditions (2010 – 2017) - %

Source: Pnad.

50.4 52.1 48.0 22.3 22.9 19.8 22.1 23.4 22.5 25.6 25.2

15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 55.0 2012 2013 2014 2015 2016 2017 With Card Without Card Autonomous

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MSE Simplified Regime

Source: Pnad (IBGE) and Sebrae.

Number of people – evolution (%)

W/Cart. WO/Card. Autonom. MEI Agriculture, forestry and fishing 8,49

15,40
23,82
152,11

Mining and quarrying 12,53

34,33
29,35
62,50

Manufacture 13,39

8,69
11,94

175,11 Eletricity and gas 5,51

45,57
71,27
Water supply, sewerage, waste man. and remediation

8,43

1,16

18,38 230,01 Construction 26,25

10,75

7,89 249,84 Trade; repair of motor vehicles and motorcycles 3,41 0,58 17,59 167,30 Transportation, storage and mail 7,19 5,40 24,96 279,41 Accommodation and food service activities 12,00 34,83 70,54 203,28 Information and communication 2,33

17,20
66,82

293,98 Financial and insurance activities 2,68 16,02

53,66
Real estate activities

9,57 2,62

18,74
Professional, scientific, technical activities

18,38

12,25
52,11

277,84 Administration and support service activities 8,71 3,85 49,28 206,01 Public adm. and defence, compulsory social security 12,24

0,90
84,13
Education

20,28 39,80 25,18 279,86 Human health, resid. care and social work activities 29,49 31,21 32,88 879,11 Arts, entertainment and recreation 11,55 3,57 13,13 397,46 Other services 20,68 10,86 38,64 176,03 Activities of households as employers 3,54

9,54

248,57

Activities

Accumulated ( 2012 a 2017 )

W/Cart. WO/Card. Autonom. MEI Agriculture, forestry and fishing 6,14

7,53
10,61
55,07

Mining and quarrying 1,10

31,00
16,51
68,75

Manufacture 6,87 4,41

3,14

69,52 Eletricity and gas 12,71

44,77
61,91
Water supply, sewerage, waste man. and remediation

12,04 0,57 4,92

86,21

Construction 5,09 6,82 14,17 93,42 Trade; repair of motor vehicles and motorcycles 8,28 4,09

9,42

69,57 Transportation, storage and mail 9,40 9,71

5,01

95,25 Accommodation and food service activities 17,88 9,50 5,75 75,07 Information and communication 5,29 26,27

53,19

106,22 Financial and insurance activities 13,18 5,45

6,70
Real estate activities

32,25 19,92

35,72
Professional, scientific, technical activities

5,74 1,83

25,05

81,79 Administration and support service activities 11,51 2,48

18,29

69,15 Public adm. and defence, compulsory social security 4,26

5,03
13,70
Education

17,75 33,07 11,67 93,14 Human health, resid. care and social work activities 13,53 8,55 28,60 169,74 Arts, entertainment and recreation 20,02 0,41 2,35 96,78 Other services 19,76 5,90 12,52 69,65 Activities of households as employers 1,21

1,89
Activities

Pre Crisis ( 2012 - 2014 )

W/Cart. WO/Card. Autonom. MEI Agriculture, forestry and fishing 0,66

13,80
16,54
62,58

Mining and quarrying 14,87

14,23
9,31
3,70
Manufacture

16,41

2,07
19,87

62,28 Eletricity and gas 1,19 1,25

159,86
Water supply, sewerage, waste man. and remediation

25,80

12,56
27,33

77,22 Construction 38,00

0,96

3,14

80,87

Trade; repair of motor vehicles and motorcycles 5,04

4,24

9,74 57,63 Transportation, storage and mail 4,69

21,65

30,43 94,32 Accommodation and food service activities 1,34

24,08

61,56 73,23 Information and communication 14,97

19,15

31,25 91,04 Financial and insurance activities 8,14

0,12
38,45
Real estate activities

9,04

11,86

26,55

Professional, scientific, technical activities

11,07

1,69

49,24 107,85 Administration and support service activities 0,90 9,56 28,67 80,92 Public adm. and defence, compulsory social security 14,73

2,82
86,35
Education

13,91 41,21 41,74 96,67 Human health, resid. care and social work activities 16,05 30,73 22,15 262,98 Arts, entertainment and recreation 8,39

7,94

8,42 152,80 Other services 2,24

7,55

29,58 62,71 Activities of households as employers 0,58 11,72 248,57

Activities

Post Crisis ( 2014 - 2017 )

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Título 1 Informality and Semiformality

2

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MSE Simplified Regime

Informality in Brasil:

Enterprises:

No official registration / Cadastro Nacional de Pessoa Jurídica – CNPJ (Nacional ID Firm Number)

Labor:

No labor contract / Carteira de Trabalho e Previdência Social – CTPS (Work and Social Security Card)

r Public Servant or Formal

Entrepreneur

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MSE Simplified Regime

Semiformality:

From formality to informality From informality to formality

INFORMALITY FORMALITY

S

E

M I F O R M A L I T Y

Continnuum

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MSE Simplified Regime

Source

Period 2003 2004 2005 2006 2007 [...] 2013 Annual average rate (%) Schneider, Buehn e Montenegro (2010) 1999 a 2007 39,6 38,6 38,4 37,8 36,6

1,35

Hallak et al. (2012) 2000 a 2007 24,3 22,9 22,4 21,6 21,4

3,36

Etco (2014) 2003 a 2013 21,0 20,9 20,4 20,1 19,4

16,2
2,57

OCDE - Schneider et al. (2010) 1999 a 2007 17,3 17,1 17,0 16,8 16,6

0,8

Estimations of informal economy in GDP (%)

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Simplified Regimes:

SIMPLES = Lei Geral (General Law) MEI – Microempreendedor Individual (Individual Micro Entrepreneur) Main Goals:

Reduce informality and semiformaly
Extend social security protection

MSE Simplified Regime

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MSE Simplified Regime

Size Number of firms Firms (%) Personal employed¹ Personal employed (%) MSEs 7.241.808 97,8 20.470.780 54,2 Individual entrepreneurs (MEI) 1.664.447* 22,5 1.698.999 4,5 Micro enterprises 4.685.702 63,3 10.181.308 27,0 Small enterprises 891.659 12,0 8.590.473 22,7 Medium and large companies 159.908 2,2 17.292.138 45,8 Total 7.401.716 100,0 37.762.918 100,0

Companies and personnel employed by size (2011)

Source: Sebrae (2014)

In 2017 the total number of MEIs reached 7.6 million.

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Título 1 Entrepreneurship in Brasil

3

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Entrepreneurs distribution by opportunity and necessity as proportion of beginners entrepreneurs (2002-2016) - %

Source: GEM, IBGE, Banco do Brasil e Ipeadata * The sum may not add up to 100% due to the fact that in some cases it was not possible to distinguish if it is due to opportunity or necessity.

MSE Simplified Regime

Motivation

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Opportunity 42

53 52 52 51 56 67 60 67 68 69 71 71 57 57

Survivalist

55 43 46 47 48 42 33 39 31 31 30 29 29 43 42

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Título 1 MSE Simplified Regime Evolution

4

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Simples Nacional – Tax Collection (2002-2017) Billions

Source: Federal Revenue Service

MSE Simplified Regime

Year R$ US$ 2012 46,5 23,3 2013 54,3 24,4 2014 61,9 28,0 2015 69,7 22,5 2016 72,6 22,7 2017 86,2 26,1

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Simples Nacional – Evolution (2009 – 2014) Millions

Source: Federal Revenue Service

MSE Simplified Regime

2.00

4.00 6.00 8.00 10.00 2009 2010 2011 2012 2013 2014

2.21 2.38 2.47 2.58 2.65 2.48 7.35 8.22 8.51 9.19 9.52 8.82

Nº Companies Personnel Employed

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Public Procurement Evolution (2013 – 2017) US$ Billions

Source: MDIC * Micro enterprises - estimated

MSE Simplified Regime

5

10 15 20 25 2013 2014* 2015 2016 2017 Micro enterprises Small enterprises Other sizes Total

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2013 2014* 2015 2016 2017 Micro enterprises Small enterprises Other sizes

% Accumulated

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MSE Simplified Regime

Total amount of MEIs (2010 - 2017) Millions of people

Source: Sebrae

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2010 2011 2012 2013 2014 2015 2016 2017

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MSE Simplified Regime

Economic Activity

2011 2012 2013 2014 2015 2016 2017

Agriculture, forestry and fishing

51,7 35,2 24,8 24,3 15,4 16,8 20,6

Mining and quarrying

28,6 77,8 31,3 28,6

33,3

38,9 4,0

Manufacture

102,6 53,5 34,8 25,8 22,8 17,1 12,8

Water supply, sewerage, waste man. and remediation

126,2 61,9 45,1 28,4 25,6 18,0 19,6

Construction

142,4 73,0 45,6 32,9 32,1 19,4 14,7

Trade; repair of motor vehicles and motorcycles

121,7 58,9 36,2 24,5 25,8 14,2 9,7

Transportation, storage and mail

147,2 73,9 47,9 32,0 30,6 21,9 22,0

Accommodation and food service activities

115,6 57,5 37,2 27,6 27,9 18,6 14,2

Information and communication

238,0 94,9 52,5 35,2 45,2 12,0 17,5

Professional, scientific, technical activities

127,5 70,4 41,9 28,1 36,7 26,4 20,3

Administration and support service activities

111,2 56,3 35,2 25,1 28,7 19,5 17,6

Education

138,1 73,4 47,9 30,6 31,5 23,6 21,0

Human health, resid. care and social work activities

196,1 102,6 70,5 58,2 62,9 50,9 47,7

Arts, entertainment and recreation

158,2 88,9 47,1 33,8 64,1 29,6 18,9

Other services

118,6 56,8 35,5 25,2 22,5 15,7 14,8

Activities of households as employers

119,4

58,9

Total

120,8 60,4 38,0 26,7 27,7 17,6 14,0

MEI evolution by economic activity (2010 – 2017) Growth Rate (%)

Source: Sebrae

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MSE Simplified Regime

MEI by Region (2010 – 2017) Millions of people

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 2010 2011 2012 2013 2014 2015 2016 2017 Norh Northeast Midwest Southeast South

Source: Perfil do Microempreendedor Individual (Sebrae, 2017).

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MSE Simplified Regime

Occupation before registering as MEI (%)

Source: Perfil do Microempreendedor Individual (Sebrae, 2017).

Occupation

2013 2015 2017 Formal employee 41 45 50 Informal entrepreneur 31 22 23 Informal employee 16 16 13 Housewife 6 8 6 Government Employee 2 3 3 Student 2 3 2 Formal entrepreneur 1 2 2 Unemployed 1 1 1 Retired

1

1

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MSE Simplified Regime

Increase in sales after formalization – 2017 (%)

Source: Perfil do Microempreendedor Individual (Sebrae, 2017).

Yes 78 No 22

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MSE Simplified Regime

Reasons for registration as MEI - 2016

Source: Perfil do Microempreendedor Individual (Sebrae, 2017).

Motivation % Social security 32,2 Company formalization 22,4 Permission for issuing invoices 10,3 Growth possibilities 8,7 Avoid problems with State inspection 6,7 Facility to create a company 5,9 Low (or none) formalization cost 3,7 Possibility to cheaper/better purchases 1,7 Possibility to sell with credit/debit cards 1,3 Getting loans as a company 1,2 Possibility to sell to other companies 1,1 Possibility to sell to the government 0,3 Others 4,5

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Título 1 Challenges

5

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SIMPLES

Change in revenue limit (law change): periodicity not defined.

MSE Simplified Regime

Period Revenue threshold (R$ millions) Until 2011 2,4 Until 2018 3,6 Present 4,8

Sudden downsizing
Size classification
Do not consider inflation
Historical series

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SIMPLES

Encourage semiformalization

Barrier to growth = Sudden increase in taxes and

compliance costs (bureaucracy)

Brazilian federative structure

MSE Simplified Regime

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Software house:

Revenue = R$ 4,5 millions Intermediate consumption = R$ 1,0 mil Added value = R$ 3,5 mil It IS SME for Simples

Manufacture:

Revenue = R$ 5,0 millions Intermediate consumption = R$ 4,0 mil Added value = R$ 1,0 mil Its NOT SME for Simples

SIMPLES

Revenue-based framework

Sectors with different intrinsic characteristics are

framed by the same value criterion, generating “injustices”

MSE Simplified Regime

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MEI

Very high tax evasion

Ignorance of monthly payment obligation

(DAS)

The desire of having only the formal

registration (CNPJ), not social security

Lack of financial capacity for payment

MSE Simplified Regime

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MEI

Tax evasion (%)

MSE Simplified Regime

2012 2013 2014 2015 2016 2017 2018* 51,3 52,6 53,1 53,4 58,6 59,7 46,8

Source: Federal Revenue Service

* Data for February 2018. The fall is probably due to the cancellation

f the “omitted" MEI that was made in January (the lion).

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MEI

Tax evasion 2015 (%)

MSE Simplified Regime

Source: Inadimplência dos micro empreendedores individuais (Sebrae, 2016).

Trade Construction Industry Services Farming 46,9 46,8 46,1 45,1 43,8

By activity Previous situation on social security

With Coverage Without Coverage Outside Market* 53,9 43,2 2,9

* Student

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MEI

Potential increase in precarious labor relationships (outsourcing) Brazilian federative structure “Tax voracity” risk (the lion) Under the "actuarial logic“ (budgetary equilibrium), a potential significant deficit in the social security cash flow

20 MEIs for 1 retirement pension (minimum wage)

MSE Simplified Regime

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National Challenge

Labor relationship precarization due to the economic crisis

MSE Simplified Regime

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Título 1 Conclusions

6

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1.Very significant positive results 2.An important step towards the creation of an institutionality capable of overcoming informality and semiformality in the country

MSE Simplified Regime

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But

3. Insufficient to, singly, face the

problem

4. Potential incentive to labor

relationship precarization and enterprises semiformality

5. Problems for Social Security

funding

MSE Simplified Regime

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And

6. Important new issues and new

challenges in face of the economic crisis and new labor legislation (relax labor rules)

MSE Simplified Regime

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Findings:

As all public policies, MSE Simplified Regimes

needs constant monitoring and adjustments to face challenges

As all public policies instruments, it has a strong

dependence of the context (politic, economic, legal etc.). So, it can not be an isolated action. It must be part of a coherent integrated and coordinated long term process.

MSE Simplified Regime

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My “Evangelization”:

Economic and social development are impossible

without the MSMEs (and its workers) inclusion. So

We don’t need a “Development Plan for the

MSMEs” MSE Simplified Regime We don’t need a “Development Plan for the MSMEs”. What we need is a “Development Plan WITH the MSMEs.

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MSE Simplified Regime

In other words:

MSMEs are not a problem: they are the

solution! That means:

MSMEs (and informality) must be in the

CENTER of Development Policies and not fighting for the crumbs that falls out of the dish.

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MSE Simplified Regime

July 2018 Manila, Philippines