Tax. Returns will fall by hundreds of millions of euros. Expected effect by the government and used by the opposition The annual IRS adjustments have already started to cause surprises for many taxpayers and the issue is being followed up in the government "with some concern", a ministerial source told Expresso. No wonder. The amounts of the refunds, which will be settled in the middle of the election campaign, will fall significantly: there could be around EUR 500 million less in refunds issued, Expresso knows. This figure will also have an impact on consumption and the country's accounts in the second half of the year, as the Bank of Portugal (BdP) predicted in its latest economic bulletin. "Private consumption should be conditioned in the second quarter by the impact of the expected reduction in IRS refunds, resulting from lower withholding taxes in September and October 2024," wrote the BdP. The calculations presented show that the effect on public accounts could be close to EUR 500 million. There is no official data, but taking into account the expected result of the various measures adopted in the IRS and the final impact on revenue in 2024, it is possible to point to a figure of around several hundred million euros. In other words, in practice, taxpayers had a kind of early refund in the fourth quarter with the withholding rates with retroactive effect. For the time being, the Ministry of Finance told Lusa that "it is expected that there will be less need for adjustments at the end, since these amounts were made available earlier, preventing families from having to wait for their refund this year". Expresso asked Miranda Sarmento's office on what basis the withholding tax rates applied in September and October were calculated, how much less will be paid in refunds and whether a slowdown in economic activity is expected, but received no reply by the time this edition closed. What is certain is that the IRS will be used politically. The Socialists accuse the government of "deceiving" taxpayers by lowering withholding tax rates at the end of the year more than they should have, in order to "create the perception that the Portuguese are recovering their income". For António Mendonça Mendes, MP and former Secretary of State for Tax Affairs, what the government did was to "induce private consumption at Christmas time in order to show better GDP growth in the last quarter of the year", with an eye on elections if the Budget had failed. On the other side, despite the explanations that have been given, and the government's insistence that there has been a tax cut, there are fears about the impact it could have in the middle of the campaign. "It's obvious that it comes at a complex time," acknowledges the same source, but "it won't be dramatic". But there's more. According to Mendonça Mendes, the government's strategy served to help the economic results, considering them a "hoax". "What they did to the Portuguese and to the country is unforgivable." The PSD returned the criticism with accusations of "intellectual dishonesty" from those who are "obliged to have greater knowledge". In addition to stressing that the AD lowered the IRS in 2024 and recalling that it was the PS that insisted on the need to review the withholding tax tables. Was September and October an original sin? Experts interviewed by Expresso suggest that the transition between the two monthly tax regimes should have been more gradual. In other words, the special withholding tables applied in September and October to all workers and pensioners, to retroactively reflect the changes in the brackets at the beginning of the year, may have withheld less tax: "It may have been excessive, because it not only covered the portion of the tax that decreased, but more than compensated for the fact that the previous withholding tables implied refunds in favor of taxpayers. If, as some simulations and concrete cases seem to show, low-income taxpayers now have to pay back money, we're looking at an over-adjustment. A more gradual adjustment of the withholding tables would have been preferable," argues Miguel St. Aubyn, Professor of Economics at the Instituto Superior de Economia e Gestão. In the alternative scenarios that tax consultancy Ilya drew up at Expresso's request, if the government had dispensed with backdating the changes to the brackets to January, and had implemented the new withholding tax rates from September, a single taxpayer without children, with a monthly income of €1300, would have a refund of €166, which rises to €369 for monthly incomes of €2000. In the current situation, they will pay EUR104 and EUR211 respectively. A couple with one child and a joint monthly income of EUR2000 would receive EUR103, while a couple with two children would get back at least EUR105. In this year's settlement, they will end up paying EUR117 and EUR27 respectively. NUMBERS 0,4% is the quarter-on-quarter GDP growth rate in the second quarter. The BdP justifies the slowdown partly by a reduction in repayments EUR166 would be the average refund for a single taxpayer without children earning EUR 1,300. You may have to pay EUR104 Although this hypothetical scenario always provides for a refund, "the monthly withholding tax rates would not, however, have fully corresponded to the reduction in the final IRS rates, approved during 2024," recalls tax expert Luís Nascimento, from Ilya, in his analysis for Expresso. "In this case, we can see that there would be less financial availability for families in those months, but it would imply that, with the submission of the final tax return, there would be a refund." With what was applied in 2024, all these households would receive more in September and October, but will invariably have to pay tax if they don't have more deductible expenses. The tax expert points out that the tax actually due is, on balance, always lower than it would have been if the tables approved at the end of 2023 had been maintained throughout 2024. But he recognizes that "the balance between the practical application of this withholding tax mechanism and the final tax is very difficult to achieve. The tables are general and not for each taxpayer. As they are general, it is difficult to make this adjustment on a case-by-case basis," he explains. To reduce the possibility of bad surprises, "it is also the responsibility of taxpayers to use the rights that are available to us to mitigate the impact of the final tax," he warns, however, such as making full use of the possibility of deducting tax by always requesting an invoice with a taxpayer number and approving invoices in good time on e-Fatura. Paula Caeiro Varela Journalist Paula Caeiro Varela