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Portugal’s State Budget for 2016

The final overall vote on the 2016 State Budget Law proposal is scheduled for 16th March.

Until then, the wording of Bill no. 12/XIII/1 may be amended due to ongoing committee debates that are examining the proposed law, line by line. The first debate within the Budget, Finance and Administrative Modernization Committee was held on 10th March.

With that in mind, the final version of the Bill should only become public by the end of March, after which it must be approved by the President of the Republic.

However, a number of rules related to the state budget already came into force in the beginning of the year and will impact the income and tax burden of both businesses and households in 2016, such as:

  • The phase-out of salary reductions for public servants, currently applicable to gross salaries over €1.500,00;
  • Reduction of the so called Exceptional Contribution of Solidarity (charged on pensions, grants for public servants and other subsidies of similar nature that exceed a certain amount): the rates applicable were cut in half, having been set at 7,5% and 20% for 2016, according to the value of the pensions;
  • The Personal Income Tax surcharge for 2016 will be progressive, based on taxable income, instead of the fixed rate of 3,5% that had been in place in previous years;

In addition to these rules, the new State Budget will bring about relevant changes in tax legislation, from income tax, through property tax and excise duties, to car tax.

As of now we cannot fail to notice two aspects of the government’s legislative technique in the making of this draft budget.

Firstly, many of its rules take the form of mere legislative authorisations. This means that after the new State budget comes into force, there may be further changes in the area of tax policy throughout the year, should the debate and discussion of these additional changes be deemed timely and relevant by the Portuguese Parliament.

Secondly, a significant number of rules are self-proclaimed explanatory guidelines, with the intention (of dubious legality and constitutionality) of enabling their retroactive application, which may cause some uncertainty when it comes to the taxation of operations that took place before the 2016 State Budget.

In the next few weeks, we will follow the developments of the legislative process and simultaneously let you know more details on the main changes put forward in Bill no. 12/XIII/1.

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