Portugal Announces Broad Package Of Tax Measures To Reduce Deficit

by Ulrika Lomas, Tax-News.com, Brussels

27 May 2005

The Portuguese government has confirmed that a number of tax increases will be put in place over the next three years, alongside a crackdown on tax evasion and banking secrecy as the new socialist administration sets about reducing the budget deficit, which could hit 7% GDP this year - more than double the limit set by the EU stability pact.

The measures announced by Prime Minister Jose Socrates include an increase in the standard rate of VAT to 21% from 19%, a new income tax rate of 42% on salaries of EUR60,000, increased taxation on oil products and tobacco, and a temporary freeze on seniority pay rises in the civil service.

The government will also seek to prune a "vast list" of tax benefits and exemptions and set a maximum limit on corporate tax benefits. Socrates also announced the lifting of bank secrecy laws as part of a crackdown on tax evasion and fraud.

"We have to attack the deep structural causes of the crisis and break the vicious circle of escalating deficits and constant tax increases," he explained.

Central bank governor, Vitor Contsâncio has been appointed by the government to head a commission which will prepare a report on the current state of Portugal’s public finances after doubts were raised over data from the last three years.

Socrates has stated that his government faces a shortfall of EUR5.5 billion because the previous government underestimated expenditure on state programs and overestimated revenues.

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