Mind the Gap, Please! How Portugal Could Reform Its VAT System

Portugal’s VAT policy has several oddities, such as the upcoming hike in VAT rate for meals if wine or soft drinks are offered.
The complexity of the VAT system has led to distorted consumption behavior and significant base erosion.
Portugal’s tax system ranks low in the International Tax Competitiveness Index, and reform focusing on simplification and base expansion is needed.
The VAT allows for efficient revenue collection, but Portugal’s standard rate of 23% is higher than the EU average.
In 2021, Portugal collected only 51% of the ideal VAT revenue, with the gap attributed to compliance issues and policy choices that erode the tax base.
The use of reduced rates and exemptions for goods and services contributes to the large VAT gap.
Closing this gap would generate significant revenue for the country.