OECD’s report analyses and compares the taxation system in 88 different countries. Portugal has the 8th highest corporate tax burden in the analysis.
Portugal presents the eighth highest corporate tax burden in the OECD, but the income generated is not so representative for the public finances. These are the conclusions found in the report published by the OECD this Tuesday, which compares statistics and information on the taxation systems corporations are subjected to in many different jurisdictions.
In Portugal, companies have to return 21% of their profit to the government, via taxes, which makes it the eighth highest corporate tax burden in the OECD among the 76 different jurisdictions which had data available for 2018.
The first position in the ranking is occupied by India, and the last one by Hungary. However, it represents a 35.2% drop, when compared to the corporate taxes the Portuguese companies had to pay in 2000. In the most recent years countries have shown a tendency to reduce the tax burden for corporations.
Between 2000 and 2018, 76 countries showed a slowdown trend, while 12 maintained the same values, and six increased their taxes.
OECD’s report also looks at the combined corporate tax — which also adds what companies pay to municipalities. And when it comes to these, the report concludes that Portugal is also among one of the countries in which these taxes increased over the last year. “Between 2017 and 2018, the combined tax lowered in ten different jurisdictions, and increased in six (Canada, India, Korea, Latvia, Portugal and Turkey).”
In November 2015, when the coalition government took office, the state decided to withdraw from PS and PSD’s prior agreement on lowering the taxes to 18% until 2020. Additionally, they decided to aggravate the state surtax for companies which had over €35m in profits.
Many of the committees representing these companies highly criticized this option, but EY’s survey to the large majority of the companies which were affected by the new taxation showed that this move did not change their investment plans for this year and the next one.
Parties on the left have defended the increase in surtaxes, but during the last State Budget, the government was spectacularly against repeating the same initiative as before. However, the President of the country revealed that he was not pleased about the lowering of the IRC (corporate tax), by the time he enacted the State Budget for 2019. The lowering of the IRC is almost a badge used proudly to represent the centre right parties.
Even though Portugal is among those which have one of the heaviest corporate taxes in OECD’s report, the income accumulated by this strategy is not so impressive in comparison to the total state revenue and also in comparison to the GDP. It is way below the average of all other OECD countries (both Portugal and the OECD are below the average of the total of all countries observed, with corporate tax income representing 13.3% of total state revenue).
As for IRC in comparison to GDP in 2016, Portugal was up in the rankings a little bit to the 39th position, above OECD’s average, and the average of all the 88 different jurisdictions analyzed (3%).
Over the last few years, Portugal’s tax burden has increased, accompanying the country’s economic growth. Only the VAT tax and personal income taxes (IRS) have suffered any reductions so far.
Malaysia is the country where the corporate tax is most representative for the state revenue whereas Cuba’s corporate tax turnout is the highest in relation to GDP.