VAT Intervention: "Not on the Table"
Inflation hits 2.7% as fuel costs surge—no tax relief in sight
Economic literature widely agrees that reducing VAT on unregulated goods—such as food products—often results in producers and distributors absorbing part of the tax cut, Finance Minister Joaquim Miranda Sarmento stated during a hearing before the Budget, Finance, and Public Administration Committee (COFAP).
The issue of tax relief was raised by Chega MP Eduardo Teixeira, to whom the minister replied that if the party believes revenue from a consumption tax reduction "should be allocated elsewhere rather than passed on to consumers, that is a decision for Chega to make."
Sarmento's remarks in the Assembly of the Republic follow Prime Minister Luís Montenegro's earlier assertion that "no VAT intervention is currently under consideration"—neither for fuel nor for essential food items.
The minister again denied claims that the state is profiting from higher VAT revenue due to rising diesel and gasoline prices, emphasizing that consumers are already benefiting from discounts on the Tax on Petroleum and Energy Products (ISP).
"With fuel, the state is not gaining extra VAT revenue from price increases because any additional VAT collected is offset by reductions in the ISP. The nearly 10-cent discount on diesel and nearly 5-cent discount on gasoline directly correspond to the extra VAT from price hikes, which is then deducted from the ISP," he explained, noting that this mechanism was also applied in 2022 under then-Prime Minister António Costa's Socialist (PS) government.
In response to Liberal Initiative (IL) MP Mário Amorim Lopes—who pointed out that other countries have implemented price and margin controls, particularly on fuel—Sarmento reaffirmed that the government will not impose price caps.
"Naturally, there will be no administrative price-setting," he stated, stressing that regulatory oversight has focused on preventing "abuse of dominant market positions or unfair pricing practices" in certain sectors and goods.
He made clear that this approach would not be adopted, "given the well-documented negative consequences it would entail."
Bloco de Esquerda (Left Bloc) MP Fabian Figueiredo, who brought Lego pieces to the parliamentary hearing to illustrate rising fuel costs and draw comparisons with Spain, called for a VAT reduction on fuel.
"Playing with Legos is fun, but it doesn't explain economics," the minister retorted.
Support Measures Should Be "Targeted, Not Universal"
Addressing Livre MP Patrícia Gonçalves, Sarmento argued that financial support should, "wherever possible, be targeted rather than blanket assistance" and reiterated that any future measures would continue to prioritize "low-income households and the most energy-price-vulnerable sectors of the economy."
Regarding Tuesday's data from the National Statistics Institute (INE), which showed inflation rising to 2.7% in March, he noted that the figures clearly indicate fuel prices as the primary driver of the increase.
