Contrary to the government's expectations, the tax burden increased in 2020 and reached 34.8% of GDP, a new record. Still, it is the eighth-lowest among the 27 member states of the European Union.
Despite the pandemic crisis, the tax burden increased in 2020 to 34.8% of GDP, a new record. The figure had already been advanced at the end of March when last year’s budget balance was published, but it was confirmed this Tuesday by Statistics Portugal (INE) in the release of tax statistics for 2020. Yet Portugal’s tax burden is the eighth lowest in the European Union.
As the ECO had already explained, the taxes collected by the State last year were reduced, but this fall (-4.7%) was more modest than the nominal contraction of 5.4% of GDP (-7.6% in the case of GDP in volume). As the tax burden is a ratio, the figure ended up going up instead of down, as expected by the government.
In total, taxes that count towards the tax burden amounted to €70.4 billion in 2020, €3.5 billion less than in 2019 – this was the first fall in tax revenues since 2012.
What happened within State revenue? On the one hand, the tax authorities collected less from VAT, due to the sharp fall in private consumption, and from corporate income tax, given that measures were introduced not to tax companies based on the profits of previous years, which were not to be repeated in 2020. “It is recalled that one of the measures to help companies resist the adverse effects of the Covid-19 pandemic was the suspension and/or exemption of payments on account,” INE recalls. On the other hand, revenue from personal income tax (IRS) and social contributions (TSU) increased in a pandemic year.
VAT revenue fell by €1,994 million and corporate income tax revenue contracted by €1,129 million, for a total of €3,123 million – the remaining drop was due to other indirect taxes. This fall in VAT and CIT was partially offset by the growth of PIT revenue by €419 million and TSU by €237 million. “This positive evolution, despite the contraction in economic activity, was associated with economic policy measures aimed at mitigating the impacts of Covid-19 on employment and wages, such as the simplified Lay-off regime,” Statistics Portugal explains.
Despite this new record, “Portugal continued to register in 2020 a lower tax burden than the EU average (-3.8 percentage points),” the statistics office points out. The average tax burden in Europe is 38.6% of GDP, with Portugal having the eighth-lowest tax burden in the EU among the 27 member states.