On some social, economical and financial aspects of the Portuguese taxation system

Abstract

The author tries to make clear the quick and strong tax burden increase in Portugal. But he makes a distinction between the legal tax burden and the real tax burden. This difference, a fundamental one in order to understand the distortions in the Portuguese taxation system, results from the fact that the inflation is not taken into account on actualizing the scale of the graduated income taxes, and from the existing tax evasion and fraud. The Portuguese taxation system which has become particulary burdened after 1974/75, is mainly the result of two political purposes: to increase the receipts in order to face the public expenses, and to correct the wealthy distribution by accelerating the rythms of graduation. The attempt to follow the rise in public expenses has not succeeded and never will. In a country with such a low income per capita and at an economical standstill like Portugal, no tax burden aggravation will be able to follow the staggering rise in expenses, whatever the circumstances may be. Considering that the public expenses have increased from 22% up to almost 50% of the product in ten years, we must admit that no taxation system can meet efficaciously the needf orfinancial resources. In spite of its relative economical backwardness, Portugal is nowadays one of the countries with greater importance as a state, which was reached in a very short period of time and in a period of transition from war to peace. The purpose of the income redistribution is greatly frustraded because the tax receipts from the graduated income taxes are relatively small; because three quarters of these graduated income taxes follow from the taxes on the work income; and, finally, because there is a very high level of tax evasion from the wealthiest tax payers concerning some taxes specially favored to that purpose of redistribution, such as the capital transfer taxes (eg. by gift or inheritance). On the other hand, the very high overall tax burden on some kind of revenues, such as the capital gains tax, either obstruct or restrain the investment. Even to obtain moderate gains, the gross rentability rates must be so high, that the economic agent is by no means encouraged to invest within the framework of an open economy. Since the taxation system is unable to produce tax receipts approaching the amount of the public expenses, high budgetary deficits occur, the financing of which causes the lack of creditworthy resources for production; the investment required by either the economy modernization, the fight against unemployment, the production increase, or the stable equilibrium of the external account is highly discouraged; the transfer of resources from some strata of more qualified working
people to the other citizens produces an anomalous and iniquitious redistribution; the taxation system strongly opposes the improvement of the value of the own capital of the enterprises. Satisfactory investments in firms having recourse to public financing must be made and adequately-sized public companies must be incorporated, or else no significant increase in the primary market of risk titles will occur; consequently, the secondary market will be unable to progress quickly and satisfactorily.