It is necessary for the tax system in Portugal to approximate the IRS withholding tax to the tax that each taxpayer must pay.
Why do families receive IRS? The EU executive recommends under the Spring Package of the European Semester that Portugal cut taxes.
The European experts leave a series of notes and advice for Portugal, particularly on the effectiveness of the tax system and the social protection system
At issue is the degree of adjustment of the IRS withholding tables to the IRS tax brackets. The discrepancy is still too high.
"Withholdings from direct taxes are often too high, leading to considerable refunds in the subsequent year," the European experts write.
It is understood that the European experts propose a system where there are fewer refunds in the annual settlement, and less tax is collected each month.
Another of the recommendations is to simplify the tax benefits in force in Portugal, classifying it as "very complex and not sufficiently transparent", more than 500 tax benefits and dispersed in more than 60 laws.
Besides the issue with the IRS, the IRC structure generates "complexity" for taxpayers (companies, in this case) and represents an "additional burden" for the tax authorities since, besides the national rate, there are surcharges such as municipal and state surcharges. This complexity takes up the resources of the tax machine at a cost above the European average. At the same time, the AT's investment in information and communication technologies is "low" compared to the European average.
Greater efficiency would help Portugal reduce the time to pay taxes and lower the high size of tax arrears (at 37.1% of revenue).
Limit deductions in IRS
Deductions for health, education, real estate, alimony, nursing homes, VAT benefits and tax benefits (PPR, Public Capitalization Scheme and donations) are not cumulative. Besides the specific sub-limit of each one, there is an overall ceiling, which depends on the taxable income bracket. Only taxpayers in the first bracket can deduct without any limit. From the second to the sixth bracket, the so-called limit on the sum of the deductions is calculated based on the following mathematical formula, ranging from a minimum of 1,000 euros to a maximum of 2,500 euros.
