Portugal plans gradual company tax cuts from next year

LISBON Fri Jul 26, 2013 8:49am EDT

LISBON (Reuters) - Portugal's government on Friday promised gradual cuts in corporate taxes from early 2014 to boost investment and help the bailed-out economy overcome its deepest recession since the 1970s.

Austerity measures under the 78 billion euro ($103 billion) bailout have driven up the number of company bankruptcies and pushed unemployment to record levels of around 18 percent.

"The main economic priority is the attraction of local and foreign investment, and the reform of the corporate tax system is crucial," said Antonio Pires de Lima, Portugal's new economy minister, told a reporters.

Pires de Lima was appointed on Wednesday in a cabinet reshuffle aimed at defusing tensions which had threatened Portugal's plan to emerge from its bailout program in mid-2014.

Finance Minister Maria Luis Albuquerque said the political uncertainty had made investors more cautious about Portugal but had not put at risk the overall goal of returning to full market financing before June next year.

"We will need an additional effort to soothe investors now that the crisis is overcome and the government ready to ensure stability and determination in the reforms we had already announced," she added.

One of those efforts is to overhaul company taxation.

The finance ministry said in a presentation the plan is to cut the main corporate tax rate to 19 percent in the medium term from at least 25 percent now. Additional local and state taxes mean that in practice Portuguese companies now pay a rate of 31.5 percent.

It said 19 percent would be comparable with rates in Poland and in the Czech Republic, "two countries with which Portugal competes to attract investment".

The government said the reform, set be carried out over five years, will also widen the tax base and phase out exemptions as well as local surcharges.

It added that the draft plan had been discussed with Lisbon's troika of lenders - the European Commission, European Central Bank and International Monetary Fund - at the last bailout review that ended in June.

Officials said specific proposals for the reform will be published next week, then discussed with business groups and more broadly.

(Writing by Andrei Khalip and Shrikesh Laxmidas, editing by Jeremy Gaunt/Ruth Pitchford)

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