Portugal Bets on Technology, Hires Inspectors to Fight Evasion

Portugal’s government is stepping up its fight against tax evasion, investing in new technology and almost doubling the number of tax inspectors even as it tries to cut costs with state workers.

Paulo Nuncio, secretary of state for fiscal affairs, is betting on a mandatory electronic invoicing system for all businesses and expanding the ranks of tax inspectors to 3,000 by year-end from 1,700 to ensure companies, wealthy individuals and hard-to-tax enterprises such as hairdressers pay all their taxes. Tax revenue increased 15 percent in September from the same month last year, Portugal’s Finance Ministry said Oct. 24.

“Portugal’s tax revenue would not be rising this way without the efficiency gains from the fight against tax evasion and the parallel economy,” Nuncio said in an interview on Oct. 25. The hiring of tax inspectors is “a special case” at a time when the government is cutting state spending, he said.

The government plans to reduce expenses by as much as 3.2 billion euros ($4.4 billion) next year, including 1.3 billion euros in personnel cost-cuts. It’s shifting its deficit-reduction strategy toward expenses instead of revenue in 2014, holding personal income-tax rates steady and cutting corporate rates. Portugal raised taxes every year since requesting emergency aid from the European Union and the International Monetary Fund in 2011. It targets a deficit of 5.5 percent of gross domestic product this year and 4 percent in 2014.

Underground Economy

The Portuguese underground economy will drop to 19 percent of gross domestic product this year from 19.4 percent in 2012, according to Friedrich Schneider, a professor at the Johannes Kepler University in Linz, Austria, who specializes in the shadow economy.

While Portugal’s economy has shown signs of an “improvement” in recent months, a special surcharge on personal income tax rates and on banks is likely to remain in place in 2014, said Nuncio. The government on Oct. 4 announced plans to charge a special tax on energy producers to help narrow the budget deficit. A final vote on the 2014 budget proposal is scheduled for next month.

The government predicts it may recover as much as 500 million euros from exceptional rules that let companies and individuals settle tax debts before harsher penalties for tax fraud and evasion come into force next year.

“The state now has a greater capacity to monitor taxes as it toughens the regime related to tax crimes in a very significant way,” said Nuncio. “The paradigm has changed.”

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