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Increase in VAT threatens 120,000 jobs

Organisations representing the restaurant and catering industry have warned that up to 120,000 jobs could be lost if the Government puts up VAT.

It could also prove disastrous for the Algarve in terms of tourism as tourists opt to holiday in cheaper destinations where they get better value for money.

The current PSD government is planning to scrap the intermediate VAT rate that catering establishments currently pay at 13% and increase it to 15%.

The fine details of the proposal, which is linked in with reducing the Sole Social Tax (Taxa Social Única), has yet to be discussed with unions and other industry organisations but is expected to be presented to parliament in September by the new finance minister Vítor Gaspar.

But associations warn that raising VAT on foodstuffs sold in restaurants could result in the closure of up to 21,000 cafés in a worst-case scenario.

The Government wants to increase VAT to offset a reduction in the TSU – affecting cafés, restaurants, hotels and patisseries.

According to a study made by the AHRESP (Portuguese Hotel & Catering Association), which represents the catering industry, “Even if the TSU is lowered from the current rate of 23.75% to zero (i.e. the amount of national insurance contributions catering proprietors have to pay for their staff) it would not offset an industry that has already been hard hit by the recession,” says the association’s general secretary, José Manuel Esteves.

The study which has already been handed to unions makes it clear that if the Government opts to increase VAT to compensate from losses as a consequence of lowering the social security contributions paid by catering establishment proprietors, staff will be laid off.

The AHRESP fears that increasing VAT from 13% to 15% will wipe €1.3 billion off sector receipts by 2013, with €421 million lost this year alone.

In this scenario it would be the same as scrapping 81,000 jobs in two years and the closure of almost 37,000 establishments.

And if the 13% VAT rate was scrapped and the sector had to pay 23% in line with other sectors, then 54,000 establishments would close down (21,000 this year) with a loss of €1.8 billion in receipts and 120,000 jobs.

João Vieira Lopes, from the Confederation of Commerce and Services, says: “If the Government excessively increases VAT the consequences from businesses closing down and unemployment will completely cancel out the positive effects of reducing the TSU.”

The Tourism Confederation (Confederação do Turismo) which includes the hotel and golf industries, said that it was preparing an impact study into VAT increases on the sector.

It too warned that hiking VAT by 2% would be calamitous for areas like the Algarve and Lisbon as tourists went elsewhere to competitor destinations where VAT was lower and value for money higher.