According to details of the macro-economic plan drawn up by PS economists and financial advisors, the country’s accounts will be able to support a cut in VAT from its current figure of 23 percent to 13 percent.
The Socialist-sponsored working group estimates that this reduction will have a dent in the nation’s coffers of around 300 million euros during the course of 2016 with a direct impact of 210 million euros on the public deficit.
But the report argues that a cut in the flat VAT rate would see fewer establishments dodging taxes, many of whom do so to keep their doors open, which in turn would soften the blow on the state’s depleted coffers.
Economists also believe that with more disposable income available, restaurants will be more inclined to hire young and low qualified workers who they say were the first to suffer as a consequence of the VAT hike in 2012 imposed by the current government.
Latest available figures show that 775 venues shut their doors in 2014, but that 1,231 such businesses opened during the same period.
The measure has immediately been welcomed by the industry and the Tourism Confederation has predicted that this substantial drop in VAT will see national companies become more competitive, with “Portugal’s world-renowned gastronomy now coming at a cheaper price for visitors.”
Late last year, the Association of Portuguese Hotels, Restaurants and Similar (AHRESP) submitted a petition containing more than 20,000 signatures, which called for the rate of value-added tax in the sector to be brought back down.
It also presented case studies of how the increase had had a negative effect on the food and beverage industry.
AHRESP further claimed that there was a “clear difference in competitiveness between Portugal and [the rest of] the European Union” where tax was concerned.
“We’re the country with the highest VAT rate” for this sector.
In a statement, the association argued that tourism “is one of the most important engines [that has] contributed most to the economy” and that a cut in the VAT rate would therefore boost the economy.
“We’re all in agreement that companies who have survived the crisis need a real sign of improvement, such as a tax cut, so that they can continue to fulfill their obligations, while also maintaining and creating jobs,” the assocation said.