Upcoming Tax Reforms

After almost two months of controversy, the new Socialist government has finally taken office. In the position programme presented to the National Assembly, the following 10 tax reforms were proposed. Since it is likely that the State Budget will only be approved after the new president takes office in March 2016, many of the following changes may only be introduced in 2017.

1. Progressive IMI
IMI property tax will be transformed into a progressive system. In practical terms, this means that the tax payable by each owner will vary depending on the value of the property. Currently, the IMI tax due depends on the amount resulting from the application of the municipal tax rate (set annually by local authorities between 0.3% and 0.5%) on the rateable value of the property (VPT).

2. More income tax brackets
In 2013, tax brackets were reduced from eight to five, effectively pushing many taxpayers into higher brackets. The Socialists want to change this system, re-introducing new brackets. The PS also wants to improve tax credits for low and middle income families as well as eliminate the 3.5% IRS surcharge in 2017.

3. Family Coefficient
The Socialists have always opposed the Family Coefficient (where children began to be taken into account in determining the household income subject to tax) introduced by the former right-wing government. The family quotient will be eliminated and replaced by a fixed credit for each dependent.

4. New Tax Credit
The Socialists want to move forward with a new social benefit called the “Annual Wage Supplement”, designed to protect the income of workers who, due of low wages and high job turnover, have incomes below the poverty line. This supplement will act as a kind of “tax credit” or negative tax.

5. VAT reductions
As promised during the election campaign, VAT paid by restaurants will reduce from 23% to 13%. It is one of the measures likely to be introduced before 2017.

This is the first article in a two-part series. Coming next:
More tax reforms

By Dennis Swing Greene
|| features@algarveresident.com

Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.