Portugal needs more housing. This is now a virtually universal consensus. But for the supply to increase, investment is needed. And investment requires clear, predictable, and stable rules.
Unfortunately, this is not always the case. In recent years, urban rehabilitation has been encouraged through the application of a reduced VAT rate of 6% on certain projects. The measure made sense. It allowed for the recovery of dilapidated buildings, the revitalization of historical centers, and the economic viability of projects that would otherwise never move forward.
The problem arose later.
In several cases, the Federal Revenue Service has been questioning the application of this reduced rate. And when it does so, the consequence can be severe: projects that were invoiced with a 6% ICMS (State VAT) rate may now be taxed at 23%. The difference is enormous.
Even more worrying is the timing of these corrections. In some cases, they appear years after the completion of the works, when the properties have already been sold and the projects financially closed. This creates a risk that is difficult to manage.
Construction and real estate development are activities with relatively small margins and long investment cycles. When tax rules are no longer predictable, the impact is not just accounting-related. It’s economic.
Investors become more cautious. Projects stop moving forward. The real problem is not the tax rate itself, but fiscal uncertainty.
When a company makes investment decisions, it does so based on current legislation. If, years later, the interpretation of that legislation changes, the risk ceases to be business-related and becomes institutional.
And this is particularly serious. In a tax state governed by the rule of law, the rules must be clear and stable. The tax administration must apply the law, not reinterpret it retroactively to create new tax obligations that were not foreseeable at the time of the economic decision.
The power of the Internal Revenue Service is naturally important to ensure compliance with tax obligations. But this power also needs limits. When the actions of the tax authorities generate instability in the markets, the impact can far exceed revenue collection. It can stifle investment. It can reduce the housing supply. And, paradoxically, it can even decrease tax revenue in the long term.
Portugal faces a huge housing challenge today. Solving this problem requires collaboration between the public and private sectors.
But this collaboration only works if there is trust. Without fiscal predictability, investment shrinks. And when investment disappears, the capacity to increase the housing supply also disappears.
Therefore, perhaps it is time to rebalance the relationship between the State and taxpayers. Combating tax evasion is necessary. But guaranteeing legal certainty is equally essential.
A strong tax system is not just one that collects taxes. It is one in which the rules are clear and respected by everyone. Including the State itself.