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Lowering IRC rates is a communication problem

Broadcast United News Desk
Lowering IRC rates is a communication problem

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Lowering the corporate performance tax rate has become a central issue in the political debate, especially with parliament fragmented and the number of parties supporting the government insufficient to guarantee approval of the proposal.

The government wants to reduce the tax rate by two percentage points next year, to 19%, and to 15% by the end of the legislation in 2027. The proposal is part of a package of 60 measures, which the government approved in order to “accelerate the economy”, as explained by the Prime Minister himself, with the aim of “having more well-capitalized companies”.

It is estimated that this would result in lost revenue of €500 million per year, with a total cost of €1.5 billion.

The Socialist Party, the largest opposition party and the first interlocutor for approving the 2025 state budget, criticized this option, so in order to avoid friction, it will not be included in the OE proposal but will be treated separately.

The reduction of the IRC tax rate is considered fundamental to attract foreign investments, since, in fact, it is an indicator that investors first consider and compare with other opportunities, although the most relevant projects have a contractual framework that always provides tax benefits.

Fundamentally, therefore, the reduction in interest rates is a signal from Portugal to the market about its ambition to attract investment, that is, it is an element of communication policy more effective than any campaign. Even internally, the reduction in the tax rate that companies must pay conveys the perception of support for business activity.

However, if we talk to those who have already invested and developed activities in Portugal, the question of the tax burden arises, not necessarily at the level of the IRC, but in terms of what becomes an explicit special contribution (in reality, an implicit increase in the tax burden). A study conducted for the CIP by the consulting firm EY and the Sérvulo law firm found a low level of 4,300 in tax spillovers, multiplication of taxes, fees and taxes, many of which do not understand the justification.

Then, there are environmental costs, bureaucracy and energy prices, which, in large part, make businesses less competitive due to taxes. In addition, the first obstacle to the development of business plans in Portugal is justice, which insists on not playing a role and still materializes recruitment, as a result of work costs or artificial barriers caused by the incompetence of state structures.

When we spoke this month to the CEO of the Portuguese-German Chamber of Commerce, which represents the largest investors in Portugal (in absolute terms), Thorsten Kötschau clearly summed up the position of those already on the market: Yes, a rate cut is good for Portuguese businesses, because they prefer to pay less tax, but this is not the core issue. They would rather take actions to improve state services, reduce bureaucracy (which is a huge hidden cost), or create the conditions to solve issues such as immigration, he assured.

But the idea that is about to be passed is to explicitly support companies by reducing the IRC rates.



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