The OECD believes Portugal should increase the environmental and property taxes once the economic recovery is underway.
Once the economic recovery is underway, Portugal should increase environmental taxes and property taxation. The recommendation is made by the Organisation for Economic Cooperation and Development (OECD) in the “Going for Growth” report published this Wednesday.
This suggestion is justified by the need for Portugal to improve the efficiency of the tax system and is not explicitly made with the purpose of paying off the debt created by the pandemic crisis. Last week, the International Monetary Fund (IMF) told countries, including Portugal, that one option for increasing state revenues was to tax high earners more, on a temporary basis, to meet the financial liabilities caused by Covid-19.
A week later, the Organisation says Portugal needs to improve the efficiency of the tax system to “free up resources” for investment in education, health and infrastructure. The first option to have more revenue is to narrow the gaps that exist. “The use of consumption tax exemptions and reduced rates narrows the tax base and should be minimised,” the OECD begins by recommending.
The other option is to raise more targeted taxes. “Once the recovery is underway, less distortionary forms of taxation, such as property and environmental taxes, should be increased,” the Organisation says, arguing that raising the prices of pollution sources can help direct private sector spending on innovation towards more environmentally friendly projects.
As for property taxes, the OECD does not specify which ones should be increased. In Portugal’s case, the most prominent are taxes on real estate, such as IMI (Municipal Property Tax) and IMT (Municipal Property Transfer Tax).
The Organisation also insists on a recommendation that has been made for several years: there is still room for improvement in Portugal’s insolvency procedures, particularly through “reducing the time to discharge and exempting more of the debtor’s assets from bankruptcy proceedings for heavily indebted individuals.”