Background information

The measure 'Tax Incentives for Salary Increase' has been established by Article 19º- B, an article added by the State Budget for 2023 (Law no 24-D/2022 of 30 December, Article 251) to the Portuguese Tax Incentives Statute.

The measure is part of the Medium-Term Agreement for Improving Income, Wages and Competitiveness , by the government, all the employer confederations and UGT, signed on 9 October 2022. It aims to incentive employers to upgrade wages in line with the benchmarks foreseen in the agreement, having in view to improve collective bargaining and reduction of wage gap between highly paid and low paid employees.

Content of measure

The measure 'Tax incentives for salary increase' consists of an increase to 50% of employer’s tax deductions in return for salary increases for companies complying with at least one of the following conditions:

• Have a dynamic collective bargaining (signed or renewed collective agreements less than three years before);
• Annually increase wages in line with or above the values foreseen in the Agreement (for 2023, this benchmark is 5.1%);
• And have reduced the gap between the 10% higher paid jobs and the 10% lower paid ones.

Costs (wages and social security) with salary increases established by collective bargaining for employees with an open-ended employment contract will be considered at 150% of the respective amount for the purposes of taxable income for corporate income tax (IRC) and personal income tax (IRS) of taxpayers (with organized accounting). This applies only in relation to employees whose remuneration has risen by at least 5.1% and above the minimum monthly salary. The maximum sum to be considered, per worker, is limited to four times the minimum monthly salary.

Use of measure

Not estimated. It applies to all companies in the private sector that comply with the conditions set by the law.

Target groups

Workers	Businesses	Citizens
Does not apply to workers	Applies to all businesses	Does not apply to citizens

Actors and funding

Actors	Funding
National government Trade unions Employers' organisations Company / Companies	No special funding required

Social partners

Social partners' role in designing the measure and form of involvement:

	Trade unions	Employers' organisations
Role	Agreed (outcome) incl. social partner initiative	Agreed (outcome) incl. social partner initiative
Form	Consultation through tripartite or bipartite social dialogue bodies	Consultation through tripartite or bipartite social dialogue bodies

Social partners' role in the implementation, monitoring and assessment phase:

• Social partners jointly
• Main level of involvement: Peak or cross-sectoral level

Involvement

The government representatives and the social partners represented at the Permanent Commission of Social Concertation (CPCS), with the exception of the trade union confederation CGTP, signed on 9 October 2022 a tripartite agreement: the Medium-Term Agreement for Improving Income, Wages and Competitiveness. This agreement includes short-term and medium term measures (2022-2026), including the ´Tax incentives for salary increase'.

Views and reactions

While all the employer confederations (CAP, CCP, CIP and CTP) and the trade union confederation UGT agreed with the measure, CGTP opposed to it. CGTP criticizes the fiscal benefits foreseen for the employers, stating that it is urgent to increase the taxation of capital instead of transferring income from labour to capital. Also, this confederation considers that this measure will not contribute for the dynamics of collective bargaining.

Sources

• 09 October 2022: Acordo de Médio Prazo de Melhoria dos Rendimentos dos Salários e da Competitividade (ces.pt)
• 10 October 2022: Posição da CGTP - Acordo de Médio Prazo de Melhoria dos Rendimentos, dos Salários e da Competitividade (www.cgtp.pt)
• 30 December 2022: Lei n.º 24-D/2022 de 30 de dezembro (files.dre.pt)