By Alfredo Guachire
The Deputy Minister of Taxation, Óscar Orué was interviewed by the journalist Enrique Vargas Peña in Cardinal AM. They addressed several points and Orué stated that since there is no export tax on cigarettes, there is no evasion when smuggling into Brazil and insisted that “there is no patrimonial damage to the State.”
However, Orué lied, since the State loses millions at each fiscal year end due to cigarette smuggling, since local buyers pay taxes when purchasing products from tobacco companies, but not the 10% tax on the business income that is settled at each closing of the fiscal year, since contraband products such as cigarettes lack an export invoice, do not declare income and violate Law 2422 of the customs code and lose the traceability of the income produced by the local buyer responsible for sending contraband to the Brazilian market.
If cigarette exports are carried out in legal and formal ways according to current laws, the tobacco companies would receive the money through international bank transfers, being able to observe taxation and have 100% effective income control. However, who controls the rents and taxes to local buyers after removing the merchandise from the tobacco companies? By what means does the money enter Paraguay? Who controls the entry and traceability of money from local buyers? The minister is lying when he says that there is no harm.
The corporate income tax (IRE) is part of the Tax Simplification and Modernization Law that came into effect in January 2020 and collected G. 3,239,933,000,000 in its first year, increasing to G. 5,288,814,000,000 in 2021. In this way, the IRE becomes the second most collected tax of the SET and affects all those companies when their income earned in the previous fiscal year exceeds the amount of G. 2,000 million.
According to statements by Óscar Orué himself in October 2021, in Paraguay there is an evasion of 4 to 5 billion guaraníes in terms of VAT and approximately 8 to 9 billion in income per year.
Cigarette smuggling, mostly from Tabacalera del Este, represents more than half of the Brazilian market. Only on Tuesday, February 15, the Civil Police seized 2,000 packages of Paraguayan cigarettes, also on January 29, the Federal Highway Police of Brazil seized a total of 50,000 packages of cigarettes that entered their country, being valued at about R$ 2 millions.
According to a team of reporters made up of journalists from Colombia, Brazil and Costa Rica and supported by the Press and Society Institute, they revealed in 2016 that cigarette smuggling is surpassing marijuana and cocaine trafficking among the most profitable illicit businesses in Latin America.
This same team of reporters explains that in Paraguay only 2% of the cigarette produced in the country is consumed, 8% is exported and the remaining 90% assures Paraguay the role of the largest supplier of contraband cigarettes in Latin America.
These data reveal the size of the illegal contraband business and the dimension of the consequent evasion, since we do not have an approximation of the income tax leakage of the companies that buy paying taxes, but later sell the contraband cigarettes to other countries without closing the tax circle that may allow the State to obtain more taxes on corporate income.
Could it be that the evasion of 8 to 9 billion guaraníes on income per year that Óscar Orué says is taking place through cigarette smuggling?
