14 December 2012

WSJ: Portugal moves to cut corporate tax

The Portuguese government is seeking to cut its corporate tax rate for new businesses to one of the lowest in Europe, as part of a plan to attract investment and revitalise ailing industries, the minister of economy said.

"We want to make Portugal one of the most attractive countries in Europe for new investment", the minister, Alvaro Santos Pereira, said. "We believe that by providing very strong fiscal incentives to new investments we will safeguard the budget side and at the same time become a lot more competitive", he added.

Portugal, which must meet strict budget targets under a €78 billion ($102 billion) bailout programme established with the EU and the International Monetary Fund in May 2011, would need approval from its international creditors to proceed.

If implemented, the proposed tax cut would be a departure from a series of tax increases that countries including Portugal, Greece and Spain were forced to take as part their bailout conditions.

For Portugal, regaining competitiveness is important. Over the past decade, the country of nearly 11 million, Western Europe's poorest, grew an average of 1 per cent a year as it spent most of what it produced and borrowed on building new infrastructure instead of investing on productive sectors. Labour laws that made it expensive to lay off workers, and a sluggish bureaucracy and legal system, made the country less attractive to foreign investors.

Changes to make the labour law more flexible and companies easier to be set up, fiscal incentives to new investment and the use of EU funds to train the Portuguese to work in export-led industries will provide sustainable economic growth, said Mr Santos Pereira.

The plan could face resistance from other eurozone members seeking to keep a level playing field in the region.

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