Tax reform seeks better balance

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In December 2000, the Portuguese parliament approved a tax reform which will, among other provisions, lower the tax burden on employees, improve compliance and combat tax fraud and evasion. The social partners gave the reform a mixed response.

At the end of December 2000, the Portuguese parliament approved a tax reform bill. The new legislation has wide-reaching implications and includes measures such as: lower taxes for dependent employees; alterations in personal income tax and corporate tax brackets; the recognition of lone-parent families as a recognised family unit for tax purposes; a simplified taxation system for small companies; and tighter control mechanisms. New measures that are expected to improve compliance and combat tax fraud and evasion include:

• the lifting of bank secrecy;

• the placing of the burden of proof on taxpayers themselves, who will now have to demonstrate the legitimacy of their financial situations in the event of suspicion; and

• the taxation of capital gains. Until now, capital gains from stock market transactions were not subject to taxation, which trade unions claimed meant that dependent employees were paying higher taxes than financial speculators.

During the last stage of the debate, the special parliamentary commission for planning, finance and the economy asked the social partners for their views on the matters under discussion.

In recent years, a demand for greater fairness in the system of taxation had been one of the central demands of the trade unions, which considered it unfair that in Portugal dependent employees should be the country's biggest taxpayers. In its response to the parliamentary commission, the General Workers' Union (União Geral de Trabalhadores, UGT), which had already put forward a number of proposals, asserted that certain voluntary mechanisms, to be taken up in collective bargaining, should be encouraged. These voluntary mechanisms would include:

• tax deductions for professional development;

• transportation deductions for workers in the employ of others;

• incentives for supplementary social security provisions; and

• better measures to combat tax fraud and evasion

The General Confederation of Portuguese Workers (Confederação Geral dos Trabalhadores Portugueses, CGTP) recognises that the new legislation provides for general lowering of the taxes, but considers that the reduction in income tax for dependent employees will not make a significant dent in workers' tax burden.

The Confederation of Portuguese Industry (Confederação da Indústria Portuguesa, CIP) is of the opinion that the new legislation will discourage foreign investment. Furthermore, it criticises the reform because:

• it does not encourage saving or provide incentives for people to invest their savings in stocks. This lack of incentives to purchase stock in companies will stunt the growth of the financial market and make it hard for companies to find backing; and

• the system of income tax deductions has not improved and fewer items can now be considered as legitimate expenses (such as motor cars, pleasure boats, certain luxury items).