Portugal tries its luck with tax lottery

The secret to good citizenship, Portuguese tax authorities believe, could lie in giving away luxury cars.

In April, they will begin holding weekly lotteries in which 60 “top-range cars” a year will be offered as prizes to consumers who do their civic duty by asking cafés, restaurants, car mechanics, hairdressers and other businesses for receipts that include their personal tax number.

The aim is to enlist the help of ordinary citizens in combating tax evasion, unfair competition and the black economy, estimated in Portugal to be the equivalent of almost a fifth of official national output.

By converting sales receipts into lottery tickets, the government believes it can clamp down on tax dodgers as part of an effort to meet tough deficit targets set under the €78bn international bailout agreement.

Paulo Núncio, secretary of state for fiscal affairs, is confident that offering people the chance to win a new luxury car will lift the number of sales transactions communicated to the tax authorities by 50 per cent this year, with about 2bn more invoices being registered than last year.

The cost to the taxpayer of buying the cars – unofficially estimated at about €90,000 each – will be far outweighed by the increased tax revenue from previously undeclared earnings, says the government.

But the “cars-for-tax data” scheme has been greeted with a host of objections, ranging from wounded national pride to concerns about pollution.

Mr Núncio has had to field complaints that using the temptation of high-end cars to “turn citizens into tax inspectors” does not befit a modern European democracy.

The Portuguese scheme drew its inspiration from a similar lottery run in the state of São Paulo in Brazil.

Comparable schemes are used in Argentina, Colombia, Puerto Rico and Taiwan. Slovakia, which began offering cash and cars in a tax lottery last year, is the only other eurozone country to try out the “lucky receipt” idea.

“This measure may be a little damaging to our dignity,” said Carlos Loureiro, a Lisbon-based tax partner with Deloitte. “But what really reflects our level of civilisation is ... that so much income goes undeclared, rather than the measure designed to deal with it.”

Opponents of the scheme say it sends out wrong messages, promoting imports of foreign-made cars in a country trying to build an export-led recovery. They also say it is damaging efforts to increase the use of public transport and reduce pollution.

Small businesses estimate that registering the nine-digit tax number for every customer who buys a cup of coffee or a newspaper could occupy 130m working hours this year, a loss in productivity they say the country can ill afford.

Tax experts say the measure is designed to appeal to Portugal’s appetite for gaming. It is one of the biggest spenders per capita on EuroMillions, the lottery shared by nine European countries.

But some feel recession-hit consumers may still decide that their best bet lies in colluding with the underground economy.

“If someone needs a plumber or an electrician, I suspect they’ll still be attracted by the discount resulting from not being charged VAT,” said John Duggan, a Portugal-based tax adviser. “They’d be able to buy a lot of ordinary lottery tickets with the money they save.”

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