In Portugal, it is already known that the tax system does not strive for simplicity, however the lack of economic/financial/fiscal literacy has helped the Portuguese to understand little about the functioning/calculation of the taxes they pay, as is the case with the Tax on Income (IRS).
More than 30 years after the creation of the IRS (through Decree-Law 442-A/88), the way in which this tax is calculated remains practically the same, but with the exception of accounting, tax and financial professionals, how many Portuguese can understand the specifics and complexities of IRS clearance?
Normally, an employee who works for others indicates to his employer the marital status, the dependents (if any) and if there is a single holder or two holders of income. Based on these elements and the agreed remuneration, it is included in the respective withholding tax rate, that is, based on the monthly income earned, it will deduct a provisional amount that will be adjusted, at the end of the year, through its "real" bracket of IRS. Confused?
Let's look at a simplified example: a dependent worker (single, single holder logo, and no dependents) earns a monthly income of €1.000. For the purposes of withholding tax, you will “pay” 8,4% of your income every month, that is, you will receive €916 every month (ignore the meal allowance and mandatory social contributions).
At the end of the year, that is, in the annual income tax return you will fill in the income tax return with a total income of 14.000€ and a total withholding tax of 1.176€.
If no deduction for expenses (such as health, education, etc.) is considered, this worker will pay IRS, because their effective IRS rate is higher (to be precise about the amount to be paid, it was necessary to determine the income taxable through the IRS brackets that fluctuate between 14,5% and 48%).
This situation already requires a reasonable degree of analysis and understanding of the IRS Code, now let's imagine if this worker obtained Category F income (property income), in this case he could choose to apply release fees (pay a flat rate on the income obtained in this level ) or encompass (to bring together all income, whether dependent work or property income and remain at the mercy of the level where the income would fall).
In fact, at the beginning of this calendar year, tax benefits were granted to property income holders who entered into long-term contracts with tenants, which makes the tax calculation system (even) more complex and difficult to understand its applicability to " non-specialists”, like most.
However, as it is the custom in Portugal, constant tax changes, it is quite likely that the release tax on property income will be extinguished and the aggregation of all income is mandatory, that is, the tax benefits may only last for one year.
These constant changes in tax matters, in addition to the lack of economic/financial/fiscal literacy, may be the main reasons for the alienation of the Portuguese in their perception of the calculation of the taxes they pay.
After three decades of this tax, it would be important to carry out a serious analysis of the tax in question, simplifying it, either by a progressive income system (the current one) or by a fixed system (as in Scandinavian countries), making it noticeable to the Portuguese, to allow them to assess in a short term and without major calculations the impact of an increase in income on their taxes, if not the majority of the Portuguese, will continue permanently with the question: How do I know if I pay or receive IRS?
Author Miguel Luzia
Certified Accountant No. 92184
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