IMF warns Portugal of loss of tax revenues from IRS Young Persons tax breaks policy

 In IMF, IRS, News, Tax

The International Monetary Fund (IMF) has warned Portugal that its policy to give tax breaks to young people, IRS Jovem, will result in considerable losses in tax revenues.

The institution also questions the effectiveness of the measure in stemming the flow of young people emigrating from Portugal to other EU countries in search of better opportunities and higher salaries.

The IRS Jovem programme is aimed a young people between the ages of 18 and 26 with the aim of boosting their income by providing a relevant tax discount.

Starting from this year, they pay no taxes in their first year of employment, whether freelance or under contract, thereafter paying 75% in the 2nd year (up to 30x IAS), 50% in the third year (20x IAS – Social Support Index), and 50% in the 3rd and 4th years (20x IAS), and 25% in the fifth year up to a limit of 10x IAS.

“Preferential tax rates on IRS based on age will lead to a considerable loss in revenues, while it is uncertain that the incentives will limit the emigration of young people”, sates the IMF statement after having concluded a visit to Portugal on the back of Article IV to evaluate Portugal’s economy.

According to government calculations, the measure will lose the State €1Bn in tax revenues which, according to the IMF, will “have to be offset in some way”.