Portugal Hikes Income Tax 2% or Expats

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Expats living in Portugal face a new round of austerity taxes and service cuts as the government struggles to beat a budget deficit.

Portuguese finance minister Vitor Gaspar outlined the new tax details which sees income tax rise by 2% to 11.8% despite a redrafting of the tax plans following protests.

The tax increase is part of new austerity measures aimed at balancing the books after a €78 billion bailout from the European Union last year.

On top of the 2% income tax rise, expats working in Portugal will also have to pay an extra 4% surcharge based on their earnings next year, almost doubling the current rate of income tax.

Other tax increases are also on the way – including property taxes and a levy on financial transactions. Precise details of these measures are due to be debated in parliament, although the EU has already approved the details.

Prime Minister Pedro Passos Coelho will present the government’s 2013 budget on October 25, when he is expected to give more information about the GDP deficit and tax increases.

Tough measures and protests

The moves have faced stiff opposition, while many campaigners have hit the streets to protest about rising taxes and an increasing cost of living.

Antonio Costa Pinto, a political scientist from the University of Lisbon, noted that these measures aren’t going to be well-received by the general public.

“These are tough measures and protests will probably go on, but I don’t think there will be any backing off by the government this time,” he warned.

Tax hikes are not an easy option for the Portuguese government, which has faced some tough financial decisions in the past couple of years.

Growing levels of debt and a fragile economy led to the nation receiving a bailout from the EU last year, on condition the government implemented tough austerity measures.

Critical moment

The new plans announced by Gaspar will see the country’s GDP drop by 3% at the end of the year and then it will fall another 1% in 2013. Following on from this, Portugal has also reached record levels of unemployment, with 16.4% of the population now out of work.

However, the government have remained bullish about the new measures which they plan to implement over the coming months.

Gaspar said: “We are confronting a critical moment. It is fundamental that we maintain our current path to overcome our difficulties.”

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