Portugal may cut taxes if tax evasion clamp down works

(Reuters) – Portugal’s government will maintain its budget deficit goal of 2.5 percent of gross domestic product next year and any income tax cuts would depend on clamping down on tax evasion and would only be made after the end of the year, two sources said.

Portugal’s center-right government approved the 2015 budget bill over the weekend in a cabinet meeting and will present its details in the next couple of days.

A source close to the preparation of the budget said that the budget bill will include a law that will lead to cuts in taxes only if income tax receipts increase through policies to clamp down on tax evasion.

The government would evaluate the numbers at the end of 2015 – an election year – and potentially make reimbursements to taxpayers early in 2016 when they have presented their tax returns for 2015.

Another source who knows the budget proposal said that way the government will send a clear signal to European partners and rating agencies that it is determined to meet its budget goals even if other euro zone countries, like France, do not.

Portugal exited a bailout in May and is committed to meeting strict budget deficit goals of 4 percent of GDP this year and 2.5 percent next year.

Under the bailout, Portugal enacted harsh austerity and introduced the biggest tax hikes in living memory for the Portuguese.

The higher taxes and crack downs on tax evasion have led income tax income to reach record levels for the government.

In 2013 income tax revenues reached 12.3 billion euros, 3.2 billion euros higher than in 2012.