By Tiago Prata [email protected]
Prepare for a belt-tightening 2013 as the price of many products and services is set to rise again, even if inflation is estimated to be substantially lower than that recorded in 2012.
The government, the Bank of Portugal and international institutions are expecting the rate of inflation to slow this year and that price increases will stand at an average of 0.9% – the Organisation for Economic Co-operation and Development (OECD) foresees the increase to be lower at 0.8%.
But price increases in 2013 will be substantially higher than in 2012, when IVA on several products and services increased – this has forced businesses to adjust their prices, which will undoubtedly be reflected this year.
Inflation in 2012 stood at around 2.8%, but this year experts estimate the rate will be around 1%.
Read on to find out what products and services will suffer price increases this year:
Electricity and natural gas
Electric power prices will increase by 2.8%, while natural gas price will rise by 2.5%. Starting in January, these rates will be updated every three months until 2015, when the power market in Portugal is expected to become fully liberalised (see story on page 6). New transitional tariffs should be announced in February, for the period between April 1 and June 30. Consumers paying an average of €46.5 in their monthly electricity bill will see this amount rise by €1.24.
Talking on your mobile phone will be more expensive in 2013, with every major communications player in Portugal (TMN, Optimus and Vodafone) preparing to raise tariffs by around 3% from February 1. On the other hand, landline phone prices have dropped 23.3% for telephone calls on regular service hours, from €0.0318 to €0.0244 per minute, with effect from January 1.
Price increases for public transportation should be in line with the rate of inflation, having spiked in the last two years, with consecutive hikes of 4.5%, 15% and 5%. The government established price increases for public transportation last December, setting an average increase of 0.9% for 2013, as foreseen in the 2013 State Budget.
The road circulation tax (Imposto Único de Circulação) will be updated according to inflation, with the government expecting to collect more than €198 million with this tax in 2013. However, high-cylinder cars and motorcycles, leisure boats and aircraft will face a tax increase of around 10%.
Toll prices on highways and former SCUT roads will increase by about 2.03% in 2013, starting in January. This estimate is based on a calculating formula established by Law-Decree nº 294/97, which foresees the yearly increase based on the HICP inflation rates from the previous year, which are made available by the national statistics office (INE) in November.
Tobacco and alcoholic beverages
As in previous years, the government established a tax increase for tobacco and alcoholic drinks in the 2013 State Budget, which will translate in consumer price increases on cigarettes, hand-rolling tobacco, cigars, cigarillos, beer and other alcoholic beverages.
Overall, cigarette prices should increase by around 10%, with a 19% increase for hand-rolling tobacco. Specifically, the tax on cigarette prices will increase by 1.3%, stepping from the previous €78.37 to an average of €79.39 per thousand cigarettes. The tax for cigars and cigarillos increases from 15% to 20% on retail prices.
For alcoholic beverages, the average price will increase by 1.3%, including beer. The tax rate for spirits will increase 7.5%, establishing the average price as €1.192 per hectolitre.
Milk, bread and coffee prices should be similar to those charged in 2012, as the major players in the sector prefer to lose profit margins than clients in the current economic crisis.
Tenants with rental agreements established prior to 1990 will face a maximum increase of 3.4% on their monthly rent this year, while in other cases the increase on rental prices will have to be negotiated with landlords, or calculated according to the fiscal value of the property.
Healthcare fees at public hospitals (taxas moderadoras) will be updated in January in line with the rate of inflation, with the exception of consultations at Health Centres (Centros de Saúde), which will remain at €5. Specialist medical consultations in hospitals will increase from €7.50 to €7.71.
|| More tax hikes this year
The 2013 State Budget brings some of the most aggressive tax hikes in Portugal’s recent history, with increases across all tax brackets.
IRS (revenue tax) now has five personal income tax brackets (as opposed to the previous eight), all attracting heavier taxation:
Income up to €7,000 14.5% (level 1)
Between €7,000 and €20,000 28.5% (level 2)
Between €20,000 and €40,000 37% (level 3)
Between €40,000 and €80,000 45% (level 4)
Over €80,000 48% (level 5)
There is also an additional 3.5% surtax applicable to all regardless of income level and an extra 2.5% “solidarity tax” imposed on higher earners.
Tax on investment income, such as capital gains, dividends, interest and royalties, will also increase. The tax applicable now is 28%. An increase on investment income and gains had already been imposed last September from 25% to 26.5%.
Another measure from 2012 that will continue into 2013 is the 1% stamp duty increase charged on properties valued at €1 million or more. Municipal property tax (IMI) rates may vary according to the area of residence (some municipalities in the Algarve have kept or lowered the IMI rates) – but there will be increases of around €75 (or a-third of the increase) on properties that are being reevaluated.