The State Budget proposal for 2025 includes a request for legislative authorization that, if approved, will allow the Government to legislate – freely – on the reduction of VAT for the minimum rate of 6%, in works other than simple construction with “controlled costs” (which already has this minimum VAT). It will not be a general reduction of VAT in construction, but rather the Government does not give specific details about the criteria it will definelater, and that fit into what he considers a construction that helps in the “pursuit of social policies of housing.”
In the proposal document delivered this Thursday to the Assembly of the Republic, it is requested legislative authorization Therefore, “the Government is authorized to proceed with the modification of amount 2.18 of List I attached to the VAT Code, approved by Decree-Law No. 394-B/84, of December 26, in its current wording” .
However, contrary to what is common in legislative authorizations, the The proposed article has very few details about what the Government is authorized to legislate.. It is only said that the “sense and scope” of this legislative authorization is “to provide that contracts for the construction or rehabilitation of covered housing properties be defined according to established criteria by members of the Government responsible for the areas of finance and housing.”
It is also said that they will delete “the services referred to in the previous paragraph, relating, in whole or in part, to properties intended for housing are within the scope of application of the reduced rate whose value exceeds the limit compatible with the development of the Government’s social housing policies” – a formulation that also does not give many details about what the Assembly of the Republic is called to vote for or against.
Tax matters always have to go through the Assembly of the Republic but with this legislative authorization, if approved together with the State Budget, the Government is authorized to publish a diploma without any parliamentary vote. The diploma will go directly to Belém for promulgation.
The legislative authorization is “written in a generic form and leaves a lot of margin in relation to what could be defined in practice,” comments Afonso Arnaldo, partner at Deloitte. “We have a very complete authorization and the meaning of the change is quite open,” adds the expert, highlighting that it is even open whether the Ministry of Finance or the Ministry of Infrastructure and Housing will define said criteria.
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In the request for legislative authorization, the Government chose to use point 2.18 so that “it can continue to be argued that these are homes with social purposes (but not so much the typical “social housing”, but rather something more general, in a concept of “social policy”), says Afonso Arnaldo, from Deloitte.
In addition, for this expert, the Government is also trying to comply with the European VAT directive, which is a tax that is charged at the national level but that follows common rules. “The VAT Directive establishes the services and goods to which Member States can apply a reduced rate,” explains Afonso Arnaldo.
“In this specific area, this possibility is established in relation to the ‘Delivery, construction, renovation and modification of housing provided within the framework of social policies.’ It will be in this context (with this limit) where the Government will have to frame the application of the reduced VAT rate,” concludes the Deloitte specialist.
This Friday, El Observador questioned the ministry led by Miguel Pinto Luz to obtain further clarifications, but did not receive a response until the publication of this work.
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If this legislative authorization is approved, the The government can define broader “criteria”that do not limit the minimum VAT to construction “with controlled costs” – which is what the law currently provides for -. At the moment, the law that defines what construction “with controlled costs” means uses a construction price index from the INE and has the condition that a minimum of 70% of the homes built (700 out of every 1,000) be allocated to a validated program. by the Institute of Housing and Urban Rehabilitation (IHRU) as affordable housing.
But “the HCC regime is a complex and bureaucratic process that does not work… this is not the way forward; just see that there are no relevant projects underway that involve the private sector,” he highlights. Hugo Santos Ferreirapresident of APPII – Portuguese Association of Real Estate Developers and Investors.
The promoters say that they cannot build at these prices and, therefore, there is usually not much participation in the tenders launched by public entities (such as the IHRU) to carry out these construction or rehabilitation works. Hugo Santos Ferreira says that the IHRU is an “entity that is useless, that does not respond, that does not answer phones – it is a 100% blocked entity.” Furthermore, the person in charge argues, “the projects that are launched are not usually well structured and, therefore, when the housing programs are launched they usually remain deserted.”
Still, despite the lack of details in the legislative authorization, Hugo Santos Ferreira considers its introduction in the State Budget project “positive.” “There is a clear intention here from the Government to send a signal that it has understood one of the biggest demands of the sector, which has been warning that fiscal pressure is one of the biggest obstacles to building homes for the middle class and young people. people,” he adds.
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The reduction of VAT on housing construction to 6% was provided for in the electoral program of the Democratic Alliance and in the Government Program, as an “exceptional and temporary regime for the elimination or reduction of tax costs in construction or rehabilitation works.” of properties intended for permanent housing.” regardless of its location in Urban Rehabilitation Areas (ARU).” However, there was no firm commitment on when the move could be decided and in what exact way.
In May, when Minister Miguel Pinto Luz presented the general lines of the “Build Portugal” program, it was said that housing construction could have a VAT of 6% but “with limits based on prices.” The minister indicated that the measure was still being “modeled”: “we want to be fair and for this increase in VAT to be reflected, in fact, in lower prices for those who buy.”
Source: Observadora
