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Portugal Plans Windfall Tax On Income

July 2011 - Tax & Private Client. Legal Developments by Hassans.

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During his first appearance in parliament since his election on June 5, Portugal's Prime Minister Pedro Passos Coelho announced plans to impose a one-off windfall tax on income in Portugal at the end of the year. He also revealed government plans to accelerate structural reforms.

Underlining the need to meet the budget deficit targets contained in the country's EUR78bn economic recovery plan concluded with the International Monetary Fund (IMF) and the European Union (EU), Coelho unveiled plans a levy equivalent to a 50% exceptional tax on individuals 2011 end of year bonus, effectively the thirteenth month of salaries.

Plans to introduce an exceptional tax on income in Portugal are expected to generate in the region of EUR800m for the government. The Prime Minister confirmed that the levy would apply to all taxable income in Portugal, with the exception of those receiving the minimum wage.

Defending his decision, Coelho explained that the levy is necessary in view of recent budget figures pertaining to the first quarter of the year, which show that the country's budget objectives would not easily be met. Determined to draw lessons from the past, Coelho insisted that the government would be rigorous in its reduction of public spending.

Under the terms of its international bailout agreement, Portugal is required to reduce its budget deficit to 5.9% of gross domestic product this year, from 9.2% in 2010, and subsequently to 3% by 2013.

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