Individual Microentrepreneur Program (MEI) Tax Simplification
Observational StudyReview
High administrative registration costs and heavy tax burdens discourage micro-entrepreneurs from entering the formal sector, leaving workers without social protection and depressing government revenues [1-3].
Picture this
Think of starting a business like buying a pass to an amusement park. If the pass costs a full month's income and requires filling out dozens of complex legal forms, vendors will set up outside the park gate illegally. This policy replaces the expensive gate fee with a discounted, single-click monthly pass that lowers the cost barrier so small vendors can sell inside legally.
What the evidence says
The program increased business formalization between 2009 and 2015 without causing formal salaried workers to shift into micro-entrepreneurship, but generated average monthly tax default rates between 49% and 51% from 2018 to 2020 [4, 5].
- Who was studied
- Micro-entrepreneurs in Brazil with no more than one employee tracked from 2009 to 2015, and tax compliance data tracked across Brazilian Revenue Service records from 2018 to 2020 [3-5].
- How
- Quasi-experimental impact evaluation and observational administrative data analysis [4, 5].
What to do
Implement simplified single-tax registration regimes with reduced social security contribution rates for self-employed entrepreneurs to lower formalization barriers.
From the source
"Two quasi-experimental evaluations suggest that the changes introduced by this program led to an increase in formalization between 2009 and 2015 [4]."
JOI_Brazil_Evidence_in_Labor_Market_Policies_and_Implications_for.pdf