Bewildering bureaucracy, endless paperwork and one of the world’s most onerous tax systems mean that thousands of Brazilian businesses can only survive by operating illegally, according to a report published on Wednesday.

The report by the International Finance Corporation finds wide differences among the 13 Brazilian states surveyed but concludes that Brazil needs to radically simplify procedures in order to compete more effectively with other emerging markets.

“There is still a big distance between the best Brazil offers and the ease of doing business in cities such as Bangkok and Johannesburg and reforms are necessary,” says the report.

“States should look to combine the best practices inside Brazil – such as the way the property registry has been computerised in the northern state of Maranhão, and at the same time look to keep up with the rhythm of reforms in countries like Chile, Vietnam and Slovakia.”

Tax is one of the biggest problems. In one of the most extreme cases the IFC, the private sector arm of the World Bank, found that businesses in the state of Rio de Janeiro would face a tax bill equal to more than double their gross profits if they met all their fiscal obligations.

On average, across the 13 states surveyed the tax burden amounts to an average of 147 per cent of gross profit.

Changes in federal, state and municipal tax codes occur so frequently that a company employing 50 staff would need three full-time accountants in order to keep track, says Caralee McLiesh, one of the report’s authors. Accountants would need to spend up to 2,600 hours a year to deal with tax, more time than in any other of the 155 countries surveyed annually by the IFC.

The report estimates that during 2002 and 2003 42 per cent of economic activity was in the informal economy in Brazil, compared with 33 per cent in Mexico, 16 per cent in China and 26 per cent in India.

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