By Sarah Brown, contributing reporter

RIO DE JANEIRO, BRAZIL – It is the small to medium-sized companies that are gaining the bigger profits in Brazil against last year’s figures, according to the Internal Revenue Sector. They state that the low growth of federal revenues in the first semester is linked to the performance of the bigger companies mainly in the financial sector, with a rise of just 0.28 percent above official inflation from the IPC (Consumer Price Index).

Micro and Small Enterprise, Brazil, Brazil News
The Minister of the Department of Micro and Small Enterprise Guilherme Afif Domingos, photo by Antonio Cruz/Agência Brasil.

The payment of IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Profits), associated with smaller companies, grew 6.38 percent above inflation in the first semester from R$22.32 billion in the first six months in 2013, to R$22.74 billion in 2014. However for larger companies that base payment on monthly estimates of income, the total paid fell 14.29 percent from R$55.49 billion to R$47.56 billion in the same period of comparison.

It is the financial entities that are pulling the federal tax revenue down with a drop from 32.77 percent in monthly estimates of IRPJ and CSLL or, in other words, from R$22.14 billion to R$14.88 billion. This contributed to the R$3 billion difference of income tax payment arising from the initial public offering on the stock exchange of BB Seguridade, the insurance unit of Banco do Brasil.

In regards to the problems larger companies are facing, Mathieu Piques from Europartner tells The Rio Times, “Bigger companies are suffering economically this year because of their heavy administrative situation, but also because they are in a global economic situation, so are directly impacted on the exchange rates… Also big companies depends on bank credit or Brazilian organism credit, which really decreased these last two years.”

He adds, “The best example is Petrobras, they have huge projects for the offshore [pre-salt oil] industry but have been delayed a lot […]. They are having more difficulty getting credit from banks or BNDES to start their projects. Also Petrobras is so heavy that to close a deal with them, this takes time and lot of procedure to proceed on.”

Oil Platform, Rio de Janeiro, Brazil, Brazil News
Petrobras offshore oil platform P-51, photo by Petrobras/ABr.

As the big companies (some are partially if not majority-owned by the government) are the main sources for tax payment in Brazil, it is these factors that stumped the federal revenue growth for 2014. It is the IRPJ and CSLL that were hit the most with a fall in 2014 of R$4.49 billion corrected given the accumulated inflation.

In small to medium companies, sales grew 1.71 percent from December 2013 to May 2014 in comparison to the same period of 2012 to 2013, according to the Monthly Research of Trade from the IBGE (The Brazilian Institute of Geography and Statistics), benefiting mainly the trade field which is mostly occupied by small to mid-sized companies.

The performance of these companies is due to a rising consumption, despite the economic slowdown. “Consumption is still here, Brazilian culture is based on this even if credit is very expensive,” explains Piques in regards to the smaller companies’ growth. “Brazil consumes products from small and medium companies. That is why this type of company resist to the Brazilian [economic] situation.”

This comes at a contrast to the usual growth of sales being reflected in the larger federal revenues of other taxes such as PIS (Social Integration Program) and COFINS (Contribution to Social Security Financing). These two taxes in 2014 suffered a drop of 2.54 percent, or R$3.2 billion in monetary value.

This fall is not however due to trade behavior, but to the changes in PIS/COFINS of imported goods, that had ICMS (Tax on Circulation of Goods and Services) removed from the calculation basis, as decided by the Federal Supreme Court last year.


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