Government expects Portuguese people to smoke and drink more next year, increasing tax revenue by €80 million
The Government led by Luís Montenegro has already defended that the State Budget proposal for next year does not include any increase in indirect taxes (with the exception of the ISP) and, even so, manages to bring more tax revenue to the State. This is explained by the expectation of an increase in private consumption, which will lead the Portuguese to spend more in 2025, including on tobacco and alcoholic and sugary drinksitems in which the Minister of Finance hopes to raise an additional 80.1 million euros compared to this year.
“It is also estimated that IT revenue [Imposto sobre o Tabaco] increase by 63.7 million euros (+4%) and that IABA’s revenue [Imposto sobre as bebidas alcoólicas e bebidas não alcoólicas adicionadas de açúcar] increase by R$ 16.4 million (+4.7%), as a result of the expected growth in private consumption”, says the report of the State Budget proposal.
Not totally, the State will collect R$63.4 billion in taxesand indirect taxes are once again the most predominant in tax collection, corresponding to R$35.4 billion (55.8% of the total). In all of them, the Minister of Finance, Joaquim Miranda Sarmento, hopes to be able to raise more revenue due to greater consumption (average increase of 7.9% compared to 2024).
In this field, as usual, the IVA taking the largest share (R$ 25.6 billion, with an increase of 6.4%), followed by ISP (tax on petroleum derivatives), which will have the biggest increase in expected revenue (+21.9%). The State must allocate R$4.2 billion with it, R$752 million more than in 2024, after deciding to end the exemption from paying this tax on biofuels and professional diesel, adding to the carbon tax update, which explains the majority of this increase in revenue (R$525 million).
Tax revenue is expected to increase 3.7% next year
Tax revenue, in millions of euros
But, after all, why is such a high increase in consumption expected next year? First, the real income of Brazilian families (already discounting the effect of inflation) will register a historic increase in 2024, in the order of 6.6%, according to Banco de Portugal forecasts. This is justified by increased salaries and social transfers. So, the savings rate is also at historically high levels, only seen in times of economic recession. In 2024 it will be 11.5% (8% in 2023).
All this together means that the Portuguese not only have room to spend more in 2025as they are expected to do. The Government expects private consumption to accelerate by 1.8% this year and 2.1% next year, helping the national economy. The weight of private consumption in the rate of change in GDP (gross domestic product) this year is half and will fall to 40% next year, but it will continue to be the most predominant element.
José Carlos Carvalho
Indirect taxes almost double in eleven years
The Government expects to fit more than 35 billion euros in indirect taxes next yearwhich represents a jump of R$2.5 billion compared to what was forecast for the end of 2024.
Indirect taxes ‘gain’ €15 billion since 2014
In millions of euros
Which means that the increase in Portuguese consumption next year will more than compensate for the salary increase and the updating of careers in the Public Service (agreements reached for the return of teachers’ service time and for the reinforcement of supplements for the careers of the military, security forces, judicial employees and nurses), which has a budgeted cost of 1.7 billion euros and also the renewal of the IRS Jovem (525 million euros).
When it comes to direct taxes, there will be a reduction in revenue of R$305 million, due to changes in Income Tax, to R$2.8 billion.
In terms of total weight in tax collection, the percentage remains identical, always with greater preponderance for indirect taxes since 2014. That year, its weight was equivalent to 52.75% and now it is 55.84%.
Automotive sector accounts for 15%
Next year, the automotive sector will generate around 9.7 billion euros in indirect taxes, according to Deloitte simulations sent to Expresswhich take into account fuel taxation, vehicle tax (ISV) and VAT when purchasing, tolls and vehicle maintenance and repairs.
This calculation does not include the value of autonomous taxation, nor the value corresponding to ICMS on parking services, so the amount collected must be higher.
Pedro Monteiro
This is the highest value since at least 2023. That year, the automotive sector gave the State coffers a total of R$8.6 billion and in 2024, the amount grew to R$8.8 billion. These numbers corresponded to 14.1% and 14.4% of total tax revenue, respectively.
The increase of almost one billion euros between 2024 and 2025 is mainly due to the increase in the ISP, according to Deloitte, which also notes that “the decline in IRS revenue also contributes to the increase in the weight of automobile taxation on the total Portuguese tax revenue in the OE forecasts for 2025”.
