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Holiday rental businesses in uproar over tax hike

Owners of holiday rental properties (Alojamento Local, or AL) feel “betrayed” and “taken advantage of” following the announcement that they will be paying over 100% more in taxes in 2017. They fear that even fewer people will declare their activity, and question how the state will convince them to go legal if taxes are rising. Worries also centre round the possibility of taxes going up again in the near future.

These were the issues that PS MPs tried to address at a public debate about the issue on Monday evening (October 24) in Lagoa.

“Nobody likes to hear that they are going to pay more taxes,” MP Eurico Brilhante Dias told a group of property owners attending the debate.

“But there are large fiscal discrepancies” between AL and the traditional lettings and hotelier sectors that “need to be corrected”, he said.

The increase is to be implemented next year and will see AL owners paying tax on 35% of their income, as opposed to the previous 15%.
In other words, if someone is renting a property for €1,000, €350 of their income will be subject to a 25% levy which effectively increases tax payable from €37.50 to €87.50.

Though the news is understandably worrying, another MP, Jamila Madeira, said she does not believe the tax increase would have a big impact on the AL sector.

“I do not think anyone will decide to not invest in a property because of it,” she told the audience, adding that it is not in the government’s plans to increase the tax again anytime soon.

Eduardo Cabrita, president of Portugal’s AL association, disagrees about the impact of the decision.

“The (tax) increase is extremely heavy and unfair,” he told Lusa news agency earlier this month.

“It’s normal that the sector is now feeling distrustful,” he added.

Attending the debate, he urged the government to convey “confidence” to AL owners and let them know that the state sees them as an “important part” of the tourism sector, and not just a group of people they want to tax more heavily.

He also hopes the issue will be debated more and possibly changed before the final draft of the 2017 State Budget is created.

But while this is arguably the most prominent issue related to AL at the moment, the debate did not focus so much on the levy hike. Instead, it centred on how the sector can grow in the Algarve and how authorities can convince owners to officially register their properties as holiday rentals.

Speakers included prominent business, tourism and hotel pundits, such as Algarve tourism boss Desidério Silva, hotel association president Elidérico Viegas and business association leader Vítor Neto, as well as the president of the Algarve municipalities’ association (AMAL) Jorge Botelho.

What they all agreed is that a strategy is needed to bring more people into the “legalised market”.

The method used is where they disagree.

Elidérico Viegas defends “more effective monitoring” to clamp down on illegal rentals.

“Besides posing unfair competition to registered AL owners and the hotel sector, there are many millions of euros in taxes that are not being paid,” the president of AHETA said.

The other speakers did not think “more policing” is what will solve the problem, but instead “more welcoming laws” and an “easier registration process” for owners who want to the register their properties as AL.

According to data from Turismo de Portugal, there are 34,014 registered holiday rental properties in Portugal, 15,852 of which are located in the Algarve.

But even tourism authorities know these numbers don’t reflect the truth. The number of holiday rentals performed illegally is believed to be significantly larger.

Desidério Silva said that “while it cannot be said for certain, the statistical decrease of Portuguese tourists in the Algarve this summer likely did not mean that there were fewer Portuguese here”.

“Instead, they were probably staying at several thousands of these unregistered AL properties,” he said.

And what’s worse, the real number of illegal rentals is “unquantifiable,” the pundits said.

The speakers also agreed that ASAE, Portugal’s health and safety police, should not be the authority monitoring illegal rentals, as it does not have the “expertise” and “know-how” to deal with these issues.

And while all seemed to agree that the monitoring system is flawed, no real solutions were presented at the three-hour debate.

The PS MPs that attended and organised the event promised that they would take all the feedback they received into consideration, but when it comes to the levy increase, AL owners are almost certain to be coughing up much more money for the state in 2017.

BY MICHAEL BRUXO [email protected]

Photo: The debate on the new Alojamento Local tax alterations proposed in the 2017 State Budget took place at the Lagoa municipal auditorium on Monday