Factsheet for measure
PT-2023-1/3093
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Updated
– measures in Portugal
Phasing out of harmful exemptions on oil and energy products
Eliminação gradual das isenções prejudiciais em matéria de produtos petrolíferos e energéticos
Background information
The current geopolitical context requires policies that respond to economic disruption and the effects of rising energy costs. The response to this increase in costs is also connected to the Government's strategy to promote industry based on a process of digital and climate transition, the reduction of carbon emissions and the manufacture of more sustainable products with greater technological incorporation.
Thus the State Budget for 2023 (Law 24-D/2022 of 30 December) establishes the phasing out of harmful exemptions on oil and energy products.
Content of measure
Inputs used in the production of electricity and heat (cogeneration), or town gas in the mainland, are now taxed 100% of the rate of Tax on Petroleum Products (ISP) and 100% of the addition on CO2 emissions. In the Autonomous Regions of the Azores and Madeira these products are taxed 50% of the ISP rate and 50% of the rate of addition on CO2 emissions, which will increase to 75% in 2024 and 100% in 2025.
A subset of products used by entities that produce electricity, electricity and heat (cogeneration), or town gas as their main activity outside of the autonomous regions, are taxed 40% of the ISP rate and 40% of the rate of addition on CO2 emissions. In 2024 the percentages will increase to 50%.
Another set of products, petroleum and energy products used in installations subject to an agreement on the rationalisation of energy consumption (ARCE), will be taxed 30% of the rate of addition on CO2 emissions in 2023. In 2024 the percentages will increase to 65% and in 2025 to 100%.
The rate of addition on CO2 emissions does not apply to the products covered by the European Emissions Trading Scheme (ETS).
These exemptions will not apply to biofuels, biomethane, green hydrogen and other renewable gases.
Updates
The following updates to this measure have been made after it came into effect.
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29 December 2023
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In 2024, with the State Budget for 2024 (Law No. 82/2023), the measure moved towards partial taxation: certain energy products became subject to 50% of the rates of the Tax on Petroleum and Energy Products (ISP) and the additional tax on CO₂ emissions. This was an intermediate step, which marked the effective end of exemptions, but not yet their full application. The State Budget for 2025 (Law No. 45-A/2024) in its Article 98 determined the full application of taxation: the products covered became subject to 100% of the ISP rates and the CO₂ surcharge from 1 January 2025.
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Use of measure
No information on the use of measure is available.
Target groups
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Workers
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Businesses
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Citizens
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Does not apply to workers
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Applies to all businesses
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Does not apply to citizens
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Actors and funding
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Actors
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Funding
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National government
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No special funding required
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Social partners
Social partners' role in
designing the measure
and form of involvement:
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Trade unions
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Employers' organisations
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Role
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Consulted
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Consulted
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Form
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Consultation through tripartite or bipartite social dialogue bodies
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Consultation through tripartite or bipartite social dialogue bodies
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Social partners' role in the
implementation, monitoring and assessment phase:
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Social partners jointly
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Main level of involvement: Peak or cross-sectoral level
Involvement
The employer and trade union confederations were involved in the discussion and the drafting of the Opinion of the Economic and Social Council on the Draft State Budget for 2023.
Views and reactions
According to the Opinion of the Economic and Social Council (Conselho Económico e Social – CES) on the Draft State Budget for 2023, the government has adopted a cautious stance. The CES points out, however, that excessive budgetary prudence will have obvious repercussions in terms of the availability of internal support for the different economic agents to deal with the most serious consequences of the crisis and also in terms of greater investment in stimulating the transformations that the country needs.
The CES notes that the State Budget proposal incorporates the commitments made in the recent Medium-Term Agreement for the Improvement of Income, Wages and Competitiveness, signed by the four employer confederations and the UGT, with effects in areas such as taxation, and which have a direct or indirect impact on the income enhancement objectives, of mitigating price increases or the reduction of context costs and the creation of a more favourable environment for competitiveness, which may contribute to greater efficiency in government action and in mitigating the impact of the deterioration of the economic situation on families and companies.
The measures foreseen in the framework of the energy and climate transition are part of the government's commitment to achieve carbon neutrality by 2050. It is important to rethink the entire strategy in this area, in line with the European guidelines.
In general terms, the proposed State Budget for 2023 is, according to the CES, timid in its support measures for the ongoing and expected economic and social effects of the war in Ukraine; it is cautious with regard to European developments in response to the crisis, starting with monetary policy; but it has room for manoeuvre to deal with the domestic repercussions of any worsening of the international situation. The CES considers that the government should adopt a flexible and dynamic stance in budgetary execution, responding promptly to the most unforeseen situations, particularly in terms of increased support for families and businesses.
Explanations of Vote:
In the opinion of the Confederation of Trade and Services Portugal, the opinion of the CES should take a clearer and more incisive stance, for which reason, even though it agreed with a large part of the content of the opinion, this Confederation voted to abstain in the final overall vote.
According to the CGTP-IN, the Opinion of the CES comprises a value judgement of the Medium Term Agreement for the Improvement of Income, Wages and Competitiveness, the contents of which will, in the opinion of the CGTP-IN, be profoundly negative. The CES Opinion, also in the area of taxation, does not criticise the measures envisaged in the State Budget in relation to corporate income tax, namely those measures which aim to deepen the Tax Benefits regime. The CGTP-IN voted against the Opinion of the CES on the State Budget for 2023.
Sources
