Electricity: associated VAT reduction will cost €500 m

  • ECO News
  • 21 September 2018

Official estimates from the government have noted that the proposed VAT reduction will have a net cost of €500m on the state's budget.

Left Party, Bloco de Esquerda, has proposed that the VAT rate on the energy bills should be reduced from 23% to 13%, including natural gas and electricity provision on their plan. The budget cost for the government will mount to €500m – and this is the net value, deducting the tax refunds from the companies.

Jornal de Negócios (article in Portuguese/limited access) spoke to a government source who stated that this value almost doubles in gross terms, claiming this amount is “not sustainable”.

The revenue corresponds to 0.25% of GDP — with most of this share coming from electricity bills — and it is considered absolutely vital to maintain this in order to finance the increases in pensions, social benefits, and, especially, for the growth of public investment.


The government’s delay in reporting the cost of the measure was justified by the complexity of the bills involved. It is not possible to do this deduction in many other significant areas such as the baking sector, insurances, education, and the private social welfare institutions (IPSS’s), given that they do not pay the VAT. And even companies which can indeed opt for the reimbursement of the VAT tax, many times don’t, for fear of the inspections from the tax administration.

For this reason, it is very hard to be accurate about the reimbursements value, which the Government estimates will be around €400m.