More Power to the Taxman

Who came up with the idea of giving the Portuguese tax authorities automatic access to bank records for the family members of suspected tax fraudsters? It's unbelievable!

Consider the well publicised IT errors that keep on cropping up: assessments for years where liability has lapsed, tax payments that do not get set off against the respective assessment, inspection staff completely devoid of any reasoning capacity, only worried about meeting their quota of inspections. It's easy for just about anybody to fall foul of such errors.

So if my company is inspected and incorrectly assessed for extra tax, which we claim against, leaving a file open (subject to somebody at the tax office remembering to register the claim), any of my family members can have their bank accounts inspected!

Not even the judiciary has such sweeping powers, but that would likely be inconvenient for a large number of eminent politicians.

So once again the little guy gets squeezed while the country rots from the top down...

Market Prices?

Under the Portuguese government's residential housing rescue plan, the government sponsored property fund will buy your house and rent it back to you if you can't meet the bank's instalments.

Sounds like a reasonable measure, until you ask what the price of the house will be. "Market price" Of course the existence of a market price depends on there being a functioning market, which there isn't! So written valuations must be obtained from two Stock Exchange approved valuers. But even that doesn't get around the problem, as the valuers' comparative valuation basis must be "market price".

While they will be in huge demand, they will probably continue to be badly paid by the banks for their expertise. I'm glad I'm not in their shoes. Actually I am a valuer, but I'm not risking registering and assuming that responsibility for the pitiful fees that banks have paid in the past. It's a sad reflection on the risks of doing business, don't you think?

There is a twist in the tail though. Property tax (IMI) is payable based on the tax department's formula-based valuation of your property. So surely, either the fund should buy your house for that valuation, or the tax office should re-base the valuation formula (downwards) to reflect the new reality of market prices, for there to be fiscal justice!

Popular Taxation

The introduction of IMI (Imposto Municipal sobre Imóveis) in 2004 was a great step forward in balancing the taxation of property ownership in Portugal and stopping evasion on property transfers, now subject to IMT (previously SISA). The basic rule was that all transactions would be assumed to have been carried out at a price based on area, location and year of construction. Thus under-declaring transaction values to avoid transfer tax became pointless and practically died out since assessed values were very close to real values.

Property was thereafter taxed annually based on this same value, making property ownership a rather painful pastime, particularly for well-off people with large and new houses.

However, the property crash has caused a glitch in the system. Owners are now being taxed annually based on values that they cannot hope to achieve in the open market.

So what was the government's reaction? Tweak the tax rate downwards! That has a number of political benefits, such as benefitting the middle classes directly, while the reduction in tax revenue is hidden from the deficit calculation as the tax income was allocated to local authorities, not to central government. Of course, the underlying principle is wrong: there was nothing wrong with the tax rate, only with the property valuations, but since when has logic applied when votes are at stake?

I wonder what they will tweak next, as elections approach. Perhaps they should have left this one to next year, as there isn't much room for manoeuvre anywhere else...

Green Governance, or just Hot Air?

José Sócrates proudly proclaimed to the press last week that Portugal will surpass its objectives under the Kyoto agreement - reducing carbon emissions more than planned. So the Government can be praised for having a green country and taking initiatives such as obliging builders to incorporate energy-saving measures into all new buildings.

What he doesn't publicise is the tax administration's response to that change in the building code: the existence of these energy-saving measures has been added as another coefficient that increases the tax valuation of your house, used to define how much is paid annually in municipal property tax and sewage charges! Surely they should use the opposite approach and reduce the value of houses without such features. Add to this ridiculous measure the pitiful tax incentives given for individuals to install such measures and we can only conclude that the Government is only paying lip service to green measures.

As for beating the Kyoto objectives, we have to presume that they were under-ambitious if the Government can get away with this.

Banking Secrecy

Portuguese tax law states that all companies must have at least one bank account used exclusively for their business activity. This is to avoid the old habit of sole traders mixing up their personal and company money, usually with the result that all personal expenses are paid with company funds.

How can that be enforced? It's difficult. The latest underhand trick is that if you want to present any alteration to a company's tax status, it is now obligatory to fill in the "bank account for tax refund" section of the form. I have a problem with that. For the tax man to find out the number of a company's bank account, he has otherwise to ask a judge. Armed with that number, provided voluntarily by the tax payer, snooping is much easier. And let's dispel the myth that there is banking secrecy without a warrant.

What do I base this conspiracy theory on?

The tax office is now emailing tax payers, both companies and individuals, pressuring them to register the number of their bank account in order to receive any tax refunds that may be due. My email states that my bank account details are "unconfirmed", when I have been receiving my refunds for ten years, always by transfer to the same account. I know of a company that has a VAT exempt status, where the email states "unless you register your bank account, you will be unable to receive your VAT refunds".

Who are they trying to kid?

The tax authorities have been given excessive powers and insufficient resources to correct any mistakes made, which are frequent. This is just another example, so if you are an individual and receive the email, my advice is to forget it. If they don't have your bank details, they will send you a cheque.