The State Budget Law for 2021, which was published on 31 December 2020, comes at a very difficult time that is one of great uncertainty for the State and for the country. It is clear from the outset that the changes to the tax laws are limited in scope and the focus is on issues considered essential and a priority. For example, there are absolutely no amendments to the laws regulating taxpayers' guarantees or tax justice. Neither are there any changes regarding potential tax incentive measures for companies that clearly and unequivocally reflect the true recovery plan supported by the expected influx of European funds.
In this pandemic, families and businesses are facing increasing difficulties due to the economic slowdown. Therefore, in terms of tax policy, it would be defensible to follow one of two avenues: (i) increasing the tax burden to finance a strengthening of social actions, or (ii) insisting on tax relief as a way to stabilise the economy.
The measures implemented throughout 2020 in reaction to the economic situation, such as the introduction of the Extraordinary Ta x Credit for Investment (CFEI II) and the temporary tax loss carry forward scheme, were precursors to what is set out in this Law: the maintenance or a (understandably modest) easing of the tax burden.
Although not a real form of tax relief, the reduction in withholding tax rates for Personal Income Tax has a direct financial effect. Even though this effect is small, it could have an immediate effect on consumption, and this objective is understandable in the current circumstances.
Two other points are noteworthy. First, excise duty rates have not been increased even though they are normally raised in line with the inflation forecast for the year to which the tax relates. Second, there are a number of incentives aimed at consumers. These include the extension of the sectors covered by the deduction of Personal Income Tax associated with e-invoicing and the introduction of the "IVAucher" (VAT Voucher).
Finally, the government introduced a restriction on access to a wide range of tax benefits for entities that do not qualify as SMEs. This, in parallel with the total absence of any new incentives in addition to those already in place, may prove insufficient to ensure the survival of a very significant part of the Portuguese business enviroment.
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