Joaquim Miranda Sarmento spoke during a joint hearing at the Budget, Finance and Public Administration Committee and the Committee on Labor, Social Security, and Inclusion. He was summoned by the Socialist Party (PS) to explain the impact of the “synthetic notion of income” subject to personal income tax (IRS) on social benefits that are currently exempt.
The issue has sparked parliamentary debate because, in the Government’s Program, there is a plan to “introduce a synthetic and comprehensive notion of income subject to IRS, which addresses the injustices and under-taxation resulting from the current limited definition of income subjected to IRS, allowing for greater relief of marginal rates.”
“The Portuguese tax system is complex and needs simplification. Therefore, we have been working towards this simplification, which will naturally result from studies and reflections and may involve changes to taxation,” he initially admitted.
He further clarified that social support will remain exempt. “Will we tax non-contributory social benefits? No, we will not. Non-contributory social benefits that do not currently pay IRS will continue to be exempt,” he stated, emphasizing that “under this Government, they will continue not to pay IRS.”
PS deputy Miguel Costa Matos had inquired which entities would start paying taxes under the new notion.
After Miranda Sarmento assured that the supports would remain IRS exempt, the socialist deputy sought to know if this would apply to all situations currently exempt from taxation.
Specifically, he asked if this would apply to compensation for bodily injury, illness, or death, to which the minister assured such “misfortune” situations would remain untaxed. “We will not expand IRS taxation to that kind of income,” he insisted.
The deputy further questioned the fate of literary or scientific prizes, sports scholarships, and compensations given to volunteer firefighters.
“Once again, it is not in the Government’s plans to make changes to the IRS’s incidence, and if it did, it would ultimately be a decision for parliament,” the minister responded, stating that the executive will not propose to the Assembly of the Republic any changes to articles 1 to 12 of the IRS Code, which concern the income tax incidence.
Miranda Sarmento explained that the idea of creating the synthetic notion of income, aligned with the constitutional idea that the tax is unique, involves considering “technological developments,” citing as an example the taxation of gains from crypto-assets, which began with the 2023 State Budget law.
PS deputy and former Secretary of State for Labor Miguel Cabrita commented that the content of the written response given by the minister to parliament on this issue at the end of August “was anything but clear” as it did not explicitly clarify that the supports would remain exempt.
For the socialist deputy, it was necessary for Miranda Sarmento to be called to the Assembly of the Republic to ensure this “live.” In his interpretation, the assurance now given by the minister implies that the Government’s program has become a “dead letter.”
When questioned by the PS deputy about why the executive is “backtracking,” the minister did not comment.
Prior to this hearing, Secretary of State for Social Security Susana Filipa Lima was heard in the same room regarding informal caregivers being excluded from other social supports because the subsidy was considered income by Social Security, thus not excluding it from the calculation of the so-called resource condition.
The Secretary of State indicated that the Government is studying a legislative change to prevent these situations from reoccurring but did not commit to making the change retroactive to return the amounts to the affected beneficiaries.
When questioned by the deputy from Livre, Patrícia Gonçalves, about any retroactive measure to compensate families who were excluded, Joaquim Miranda Sarmento stated that this is a matter that has not been analyzed yet and that he would await the legislative proposal from the Ministry of Social Security before commenting.
