The extraordinary tax "for the defense and valorization of Overseas Territories", which came into force in 1962 and taxed the profits of several companies at 10%, lasted beyond 1974, with vestiges until 1991. "The growing demands for the defense and valorization of Overseas Territories have already determined the adoption of measures aimed at reinforcing, through taxation, the inflow of financial resources to the State and, it can be said, have exerted considerable influence on some fiscal policy measures." The warning is contained in the draft law authorizing revenue and expenditure for 1962, which was examined by the members of the National Assembly on November 29, 1961. Months earlier, in April 1961, Salazar had given a speech in which he said that he had decided to go "to Angola, quickly and in force", a historic phrase linked to the start of the colonial war, after the events of the beginning of that year in Luanda, when the MPLA broke into prisons and, in the north of Angola, the massacre of civilians by the UPA. At the time, as the diary of the National Assembly sessions attests, rumors even circulated of the "freezing of deposit accounts with a view to making a forced loan". What is certain is that, as a result of the conflict, the country's expenditure rose in line with the cost of the armed forces, forcing it to divert significant financial resources (which could have been used in other ways) and to invest in new collection instruments. In the latter case, Salazar opted for the creation of an extraordinary tax which, as we read in the Diário das Sessões, "would be levied on the profits of certain commercial and industrial companies, given the nature of the activity carried out and its size". "It is hoped that fraud will not become widespread, given its highly reprehensible nature, not only in view of the high objectives of the tax but also the nature of the companies concerned." The size of the tax, the document said, should be considered "moderate", "taking into account the present circumstances", but the idea of a country united in one objective did not avoid a warning about tax evasion. "It is to be hoped that fraud will not become widespread, given its highly reprehensible nature, not only in view of the high objectives of the tax but also in view of the nature of the companies concerned, which must be presumed to be enlightened and thus aware of their duties towards the national communities," ruling out the possibility of "any exemptions". There was an assumed risk that, "due to a lack of adequate supervision", the collection of taxes for the defense of Overseas Territories would be "under-counted due to artificial detour, forcing other weaker sources to be used due to circumstances". 10% tax on profits Article 8 of Law 2111, of December 21, 1961, came out of the strategy for new funds. It instituted the creation of an extraordinary tax "for the defense and enhancement of Overseas Territories", with a rate of 10% on the profits of "all companies or firms that operate any public service concession or industrial activity on an exclusive basis" and on "those that carry out any other activity to be defined by the Government, provided they benefit from any privilege or exceptional market situation". In the same decree, it was stressed that "priority would be given to national defense costs" in terms of the country's budget. The amount planned for the first year of the new tax would be 80 million escudos, or 80 thousand escudos (39.4 million euros at current values), according to the State Budget (OE). Photo Opinion sent to Salazar on the new tax DR Another tax also created in 1961 was on luxury products, with a rate of 15% levied on items such as hairdryers, washing machines, jewelry, watches or dolls and toys worth more than 100 escudos. In the case of the Overseas Defense Tax, it was clarified in the April 1962 regulation signed by Finance Minister Pinto Barbosa that it would be levied on companies with public service concessions, exclusive industrial activities and "activities that benefit from a privilege or exceptional market situation to be defined in a special diploma". Revenue lower than expected on debut In the first year this tax was in force, revenue was lower than expected, at 70,905 billion escudos, according to the General State Account (CGE). Expenditure on the war, on the other hand, more than doubled compared to what had been estimated, rising from 1,500,000 escudos to 3,296,000 escudos, forcing two budget increases. "Without an extraordinary war budget", as it was explained, public money was channeled to pay for the conflict. Photo Universe of companies covered would be expanded in the 1970s At the end of that year, Pinto Barbosa published a list of activities subject to the tax. In all, ten were listed: explosives, the supply of military equipment "and any other articles for public services", the repair of military vehicles, the manufacture of matches, ceramics, petroleum, tires, iron and "agents or commissioners of national or foreign manufacturers and traders, the purchase and sale of property or unspecified trades". This would be the case, for example, with Sacor and Sonap, as well as Companhia Lusitana de Fósforos, Anglo Portuguese Telephone Company (which operated the telephone networks in Lisbon and Porto until 1968), Metalúrgica Duarte Ferreira, where Berliet vehicles were assembled, or Sorefame, linked to the production of chaimites. "It was a tax aimed at companies that were in some way direct beneficiaries of the war," notes Sérgio Vasques, a professor at the Faculty of Law of the Portuguese Catholic University and a doctorate in tax law. "Curiously, although the tax was justified by the military effort, it didn't burden companies according to the profits they made overseas. In practice, it was an additional tax on large companies present in the metropolis," adds the former Secretary of State for Tax Affairs (2009-2011) and author of several works on taxes. Photo "In practice, it was an additional tax on large companies present in the metropolis," explains Sérgio Vasques, former Secretary of State for Tax Affairs. Matilde Fieschi Companies complain Several companies wanted to escape this requirement by going to court, such as Estoril-Sol (owner of the Estoril casino), CP and TAP, but their claims were denied by the Supreme Administrative Court (STA). "The exemption from taxes and contributions of the state or administrative bodies, general or special, granted to Transportes Aéreos Portugueses," said the STA in a ruling in February 1968, "does not cover the tax for the defense and enhancement of Overseas Territories, as it is an extraordinary tax." In 1963, the collection of this direct tax gave a boost, reaching 190,206 escudos, only to fall back to 76,559 escudos in 1964 (43.4 thousand escudos less than budgeted), the equivalent of covering 1% of extraordinary expenditure (at the top was the proceeds of debt or loans, with 21%). That year, the war had also reached Guinea and Mozambique, forcing the mobilization of more resources, especially the number of combatants. With part of the extraordinary expenses, amounting to 7,572,732 escudos, being paid mainly from ordinary revenue, it was clear that "with the events in Africa it was necessary to mobilize large sums for [the] maintenance of the forces overseas". At the turn of the decade, in 1969, the amount stood at 225,075 contos (78.8 million euros at today's values), rising to 267,281 contos in 1970 (well above the 165,000 contos budgeted and, for example, more than double the proceeds from Savings Certificates). Extraordinary expenditure on national defense and public security amounted to 9,474,890 escudos, while the Development Plan received 4,627,199 escudos. Photo TAP was one of the companies that went to court to try to avoid paying the tax. Carlos Lopes/Archive According to a study by Ricardo Ferraz published by the Ministry of Economy's strategy and studies office in 2019, entitled "Great war and colonial war: how much they cost the Portuguese coffers", the years 1967 and 68 were the ones with the highest cost of the conflict, with the item "extraordinary military forces of Overseas Territories" accounting for around 25% of total state expenditure. "On average, between 1961 and 1974, these costs accounted for 21% of state expenditure," says the study, which later became a book. More companies targeted In 1971, with Marcelo Caetano already in power, a change was decided in the type of companies targeted by the tax, broadening its scope. Banks (and money changers) such as Banco Português do Atlântico, Banco Borges e Irmão, Banco Espírito Santo and Banco Pinto e Sotto Mayor were also included, as were breweries (including warehouses and exporters) and companies linked to cement and the sale of gasoline. It is also specified that companies that "supply public, civil or military services with any products or articles" are covered. In the year following this change, the amount of tax collected rose by 379,559 contos (103.2 million euros at today's values), according to the CGE for 1972, when expenditure on "the extraordinary military forces in Overseas Territories" reached 7,672,058 contos. This expenditure meant that around 7,300,000 escudos had to be diverted from ordinary revenue to pay the financial bill for maintaining the war in Africa, as well as the human costs. The Estado Novo still included the collection of this extraordinary tax in the State Budget for 1974 with the intention of prolonging the conflict, but that year's plans were changed by the military revolution that took place on April 25 and brought down the regime that had begun in 1926 with the military dictatorship. In all, according to an estimate by Ricardo Ferraz, an economist and researcher, expenditure on the colonial war totaled 21.8 billion euros, with the figures updated to 2018 (equivalent to 10.8% of that year's GDP), in addition to human costs. The tax without a name The tax, however, didn't die with April 25, and was kept in the 1975 State Budget, drawn up by Vasco Gonçalves (as Prime Minister of the provisional government) and Silva Lopes (Minister of Finance), and then promulgated by Costa Gomes (President of the Republic). Photo Vasco Gonçalves, as Prime Minister of the provisional government, kept the tax in the 1975 State Budget. Luís Vasconcelos The item "extraordinary military forces in Overseas Territories" still weighed heavily on expenses, in the midst of the decolonization process, and the regime that emerged from the Revolution opted to maintain its collection as it had under the Estado Novo. In the 1976 Budget (after the outbreak of nationalizations, which included many of the companies that paid this tax) it can be read that, for that year, "the tax for the defence and valorization of Overseas Territories is not taken into account, which already showed a significant drop in its collection in 1975". "The extinction of this tax", it was explained, "is part of the decolonization process", and taking into account "the purpose for which it was created". This was despite the climate of economic instability and the "austerity demanded by the government, with increases in taxes and some prices" set out in the State Budget law. "However, it is to be expected that collections will be made in the course of 1976 from pending assessments," the document said. The tax was de facto no longer called "defense of Overseas Territories", but, as Nuno Valério, a professor at ISEG, points out, it maintained its contribution to the state coffers, and was now listed simply as the "tax created by article 8 of Law 2111". According to the data published in the book Os Impostos no Parlamento Português (Taxes in the Portuguese Parliament), coordinated by Nuno Valério (and which brought together Ana Bela Nunes, Carlos Bastien and Maria Eugénia Mata), 253 thousand escudos were collected in 1975, 8% less than in the previous year. Asked why the tax didn't end in 1976, as stated in that year's State Budget, Nuno Valério, a researcher and specialist in economic history with several published works, gives a simple answer: "Because it brought in revenue." Photo "It wasn't one of the most important taxes, but it did bring in a few bucks and it was always levied until the end of the 1980s," says Nuno Valério, professor at ISEG and researcher. Nuno Ferreira Santos "The state had a negative balance in its public accounts," he recalls, so any contribution was welcomed. "It wasn't one of the most important taxes, but it gave 'a few bucks' and it was always levied until the end of the 1980s," he says, when the tax reform that gave rise to IRC took place. According to the data contained in the book on taxes in the Portuguese Parliament, in 1976 this tax brought in 173,423 escudos for the state, rising to 324,510 the following year, an amount that was never equaled again. Still according to the data in the book coordinated by Nuno Valério, the figure fell abruptly to 33,518 contos in 1980 (2.1 million euros at today's values) and to 1056 contos the following year. Funds dwindle in the 1980s "The tax tended to disappear in the 1980s, but only ended definitively with the tax reform of 1986-1989," says Nuno Valério. In 1985, the amount of tax collected was zero, and in 1986, when the country joined the EEC, it was 81 billion escudos. In 1988, the last year for which there are references in the book on taxes, the figure was 121 contos (2025 euros at current values), when capital gains tax, for example, generated 571,846 contos. In the meantime, there were also claims in the courts, with the Supreme Court of Justice declaring in its ruling, dated February 1984, that the State Budget for 1975, "by authorizing the collection of the tax for the defence and enhancement of Overseas Territories, created by Law 2111 of 21 December 1961, did not violate the constitutional principles on the matter", thus contradicting the Tecnidata company's claim. Photo In 1991 there was still money coming into the Treasury coffers from this tax Sandra Ribeiro At the beginning of the 1990s, there was still a reference to the tax in the 1991 CGE, in the amount of 10,000 escudos (117,000 euros at today's values), as the document reads, with the only possible explanation being the payment of overdue debt. The end of this tax created by Salazar to help pay for the costs of the colonial war was only made official five years ago, in 2019. Questioned by PÚBLICO, the Court of Auditors, through an official source, said that "there is no law that expressly repeals Law 2111 of December 21, 1961". "However, due to the evolution of the regime contained in the various pieces of legislation on the subject over the years, this tax has fallen into disuse as a result of history itself. It was Law no. 36/2019, of May 19, which, in paragraphs k) and zzzzzz) of article 4, expressly repealed the regime of this tax," he explained. This 2019 law was created to facilitate the judicial process, since, according to the document, many pieces of legislation remained "exempt from any express repeal or formal and unequivocal declaration of expiry". This, it was explained, made "the interpretative task of the recipients of these rules and legal operators in general more difficult, as well as overburdening the Public Administration and the courts in their activity of applying the law to the specific case". After 58 years, the last vestiges of the tax for the defense and enhancement of Overseas Territories were gone. tp.ocilbup@sobolalliv.siul