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New car sales in Portugal hit by failed promises on taxation

With car sales 5% down from 2000 the Portuguese Government has failed to keep its promise to change the country's tax system.

The situation in Portugal is delicate with ministers being replaced every three months in order to convince the voting masses that something is going to change for the better.

Non-existing benefits of these small marketing operations soon become obvious and pessimism gains ground as the year progresses.

After a whole decade growing more than the European average - basically thanks to EU funding - the national economy is having a difficult 2001 with forecasts suggesting it will stay that way in 2002 and even after that as most of the European support due is likely to be transferred to the new struggling members of an amplified Europe.

But in a scenery of continuous harmonisation, the Portuguese find it hard to accept that passenger cars are more expensive here than anywhere else in the continent. It is a clear conclusion to reach when we consider the national minimum wage and the price of cars per se.

The effect will be seen more clearly after the official birth of the new currency which will make comparisons totally instinctive and immediate.

The actual system called Automobile Tax (IA) was established in 1988 and it soon became clear that it was not acceptable because it was based on engine capacities and it penalised cars with engines above 1.5 litres.

But back then - a mere 13 years after the revolution that established democracy in the country - there were other priorities and people were happy just to own a car. Also Europe was so far away on development terms, people weren't travelling much and communication was still in the 'dark ages'.

Left wing and right wing parties came and went and no real changes were introduced to the tax system. In the nineties the pressure began to build up from importers, the media and people and the Socialist opposition grabbed the issue as a means to gain popularity.

But it soon forgot about the urge to apply new tax rules when it was elected in 1995. It was a momentary lapse of memory that continues to the present day.

But now the threat of non-scheduled general elections is stronger than ever. The economy is slumping and consumer confidence is poor as worries about the near future increase rapidly.

The two most important associations in the car sector ANECRA and ACAP joined efforts and for the first time in a long history pointed in the same direction: the new tax system had to be ready for January 1, 2002 and it would be based on an annual circulation tax (with an environmental factor in its equation) along with a tax determined by the cost of the car (ad valorem).

By the beginning of July the Ministry of Finance gave clear indications that it would change the tax system in this direction as long as the public revenue would not suffer any losses with the change.

Something which was assured through extensive simulations of how the market would react to the new rules. Finally it seemed possible to buy family cars with European quality and prices. But it was not meant to be.

Portugal has a new finance minister who said the alterations were complex and would not go ahead in September as was said by his predecessor. The next date to bear in mind is 2003 when the next general election is due.

(July/August 2001)

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