Portugal has nine IRS levels, only surpassed by Luxembourg in the EU

-PUB-

In 2021 we had seven levels, having increased to nine in the 2022 State Budget, with the previous government of António Costa.

This number of levels places Portugal in second place among the European Union (EU) countries with the most IRS levels, only surpassed by Luxembourg (23 levels).

Luxembourg is a very particular case, not only because of its small size (in area and population), but also because many of the workers who promote its economy reside outside the country, in countries with which Luxembourg borders (Belgium, Germany and France). These characteristics, in addition to very high salaries, mean that this small country has a very different fiscal framework and is difficult to use as a reference in this matter.

More than half of the EU countries (15 out of 27) have between one and three income tax brackets, with Romania, Bulgaria, Hungary and Estonia standing out with only one income tax bracket, although they may have tax exemption up to one certain value, which makes it possible to ensure some fiscal progressivity.

The high number of IRS brackets results in a high progressiveness of the marginal tax rate, reducing the incentive for workers to make efforts to obtain a salary improvement and the incentive for the employer to effectively pay better salaries, since a large part of this increase salary will end up in the State’s coffers and not in the worker’s pockets. On the other hand, a high number of IRS levels brings more complexity to the tax.

It is worth remembering that the 2023 International Tax Competitiveness Index, from the international organization Tax Foundation, places Portugal in 29th place among 38 countries in terms of competitiveness in taxation on individuals and workers. The high number of levels is one of the factors, including the complexity it places on the tax system, as previously mentioned, which should deserve our reflection.

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