The taxation of extraordinary profits will have a “great” impact on energy companies and will cause “a decrease in their market value” and may “have the perverse effect of discouraging” any possible price drop, according to experts contacted by Lusa.
Brussels proposed, on September 14, a 33% tax on the extraordinary profits of oil, gas, coal and refinery companies, whose income should be “collected by the member states and redirected to energy consumers”, to relax prices.
The Minister of Finance, Fernando Medina, said on Friday, at the insistence of the Left Bloc (BE) and the PCP on the issue, that the Executive “does not have a closed position” on the taxation of unexpected profits.
Asked about the European proposal, the economist and professor at Nova SBE João Duarte considered that “the impact on energy companies will be great” due to “the way in which extraordinary profit is being defined.” However, this definition, he added, “is the fundamental problem of the application” of the measure and “will determine the impact on companies in the energy sector”.
According to the Nova SBE economist and researcher, “the definition of extraordinary profits contained in the Commission proposal that was published is that they are all profits that exceed 20% of the average of the last three years (2021, 2020 and 2019). ) ”. Now, of these three years, the last two are pandemic, “where the economy has cooled brutally in historical terms” and in which “energy companies saw their profits greatly reduced in 2021 and, mainly, in 2020”, he continued.
João Duarte exemplifies with the case of Galp, which had an average profit “of 31 million euros in the last three years”. However, if the last five years are considered, the average benefit is 334 million euros, and “685 million euros if we consider the three years prior to the pandemic (2019, 2018, 2017)”, he pointed out.
“Therefore, it is clear that, depending on how the extraordinary benefit is defined, we may be talking about a tax base 10 or 20 times lower than the one proposed by the European Commission”, highlights the economist. In this sense, “the proposed definition implies that the profits of energy companies in 2022 will suffer massive extraordinary taxation, which may have impacts in terms of possible reductions in scheduled investments, hiring of labor,” among others.
“And it is important to remember that many of these investments are related to the energy transition towards less polluting energy sources,” he added, noting that, “despite having a general mention in the proposal that incentives for ‘green’ investments are maintain, it is not clear how this proposal for a solidarity tax on windfall profits will affect these same investments”, concluded João Duarte.
The economist admitted that the proposal “could be beneficial” for companies outside the energy sector, “that is, those that have been most affected by the rise in energy prices.” ISEG finance professor João Duque, for his part, pointed out that, first of all, “we have to estimate what these benefits are”, which is the reference on which these extraordinary results are estimated.
“Without knowing what the ‘ordinary’ benefits would be, we will never know what the ‘extraordinary’ ones are”, and another issue is the “timing” of the measure, since the benefits are determined after the closing of the accounts (during the first quarter of 2023).
“Thus, the calculation of these profits will only have an effect on the 2023 budget when the 2022 taxes are settled and paid. When is it intended to redirect these profits to consumers, when will that redirection take place? If it is in 2022, this requires an effort from the State, worsening its financial position. If it is in 2023, it may be a little late”, considered João Duque.
As for companies, “the taxation of profits will mean a decrease in their market value with consequences for the equity of their shareholders”, so “it will be normal to expect a drop in their prices”, he defended. “But I would like to make it clear that Portugal, due to the fiscal effort it already imposes on the Portuguese population and its unattractiveness and the fiscal competitiveness it shows, is far from being able to enter this field without much caution. The creation of this tax must always be with all Europeans”, he continued.
However, “the ideal would be not to have the need to do so and to become attractive from the fiscal point of view to attract more foreign investment that could increase tax collection in terms of corporate tax, but this countercyclical strategy is not in the DNA of this government,” he lamented. Finally, “the revenue from this tax must be fully channeled, either to consumers/companies, or to reduce the public debt that suffocates us”, concluded João Duque.
The economist and president of the IMF – Information on Financial Markets, Filipe García, affirmed that he is not “particularly in favor of ‘changing the rules in the middle of the game’ because if it were the other way around, the State would probably not share the risk”. Furthermore, “imposing taxes on these companies [energia e eventualmente o retalho] could have the perverse effect of discouraging a possible drop in prices”.
For Filipe García, “the State seems to consider these measures because it intends to collect political dividends, on the one hand, and collect income to improve public accounts.” He argues that the State must be “attentive to the proper formation of prices”, that is, “ensure that there is no excessive concentration or cartel movements.” This goes for all sectors.
“That is, that the market works and there is no abuse of a dominant position or cartelization,” he stressed. Regarding the possible application of a tax on unexpected retail profits, both João Duarte and João Duque reject this scenario.
“While it may make some sense from a conceptual standpoint, I think it doesn’t make any sense in practical terms. This is because, if it is already extremely complicated to define what extraordinary profits are for a sector as regulated” as the energy sector, “it would be impossible to precisely define what extraordinary profits are for the retail sector”, considered João Duarte.
“Retail normally works with fixed sales margins”, so “I’m not sure where these extraordinary profits will be. And if the expected drop in consumption due to the expected reduction in activity for the end of 2022 and the first half of 2023 is true, then we will continue to talk about supporting retail,” added João Duque.
Source: Observadora
