Government introduces two new tax brackets
The Portuguese Government is to create two new income tax brackets.
It is doing this so it can begin to reduce the tax burden that is currently falling on the Portuguese middle class.
The introduction of the new tax brackets is contained in the outline proposal for the State Budget 2022 which was handed to parliament on Monday. It is unlikely to pass at the first round because of opposition from the left-wing parties in parliament.
The Government wants to create the two new tax brackets from the third and sixth tax brackets. By doing so the Government hopes to relieve middle class families from paying the brunt of the tax burden by handing back €150 million per year.
“This is a budget aimed at the middle classes by the creation of two new brackets which will make the IRS more progressive and fairer, handing back a total sum of €150 million per year to families,” explains the Government in its introductory notes that accompany the State Budget 2022.
There are currently seven IRS tax brackets. The government had already been planning to sub divide the third and sixth brackets in 2019 for 2020 but shelved the plan because of the Covid-19 pandemic.
The Government now wants the new third bracket to cover taxable income between €10,736 to €15,216 at a normal tax rate of 26.5% and an average tax rate of €20.1%, both of which are below today’s applicable tax rates at this level of income.
The new fourth tax bracket will now cover income of between €15,216 to €19,696 applied at a normal tax rate of 28.5% and an average tax rate of 22%, the latter at 0.6% below today’s tax rate.
The fifth scale will cover incomes of between €19,696 to €25,076, applying a normal tax rate of 35% and an average tax rate of 24.8%, the latter below the current tax rate.
The sixth bracket covers income of €25,076 to €36,757, with a normal tax rate of 37% and an average tax rate of 28.7%, the latter also below today’s current rate.
The seventh bracket will cover incomes of €36,757 to €48,033 with a normal tax rate of 43.5% and an average tax rate of 32.1%, below those percentages currently applied.
The new eighth tax bracket will cover €48,033 to €75,009, with a normal tax rate of 45% and an average tax rate of 36.8%, the latter below the current tax rate.
The ninth and last tax bracket will cover incomes above €75,009, a level which is less than the tax in force today (€80,882), whole the highest tax rate of 48% remains unchanged. This means that the highest tax burden of all will begin to be applied to tax payers with incomes that are lower than up until now.