Atlantic Cities

Portugal's Bid to Fight Tax Evasion With Free Cars

Portugal's Bid to Fight Tax Evasion With Free Cars
Reuters

If you want to stop people dodging taxes, try giving them free cars.

That’s the rationale behind a quirky new plan in Portugal, which sets up a lottery for people who insist on getting proper receipts for purchases. Called Factura da Sorte or "lucky receipt," the scheme, launched by the Portuguese government last week, will provide coupons along with receipts. These coupons will act as lottery tickets in a draw that will dole out up to 60 cars to winners each year. 

While it's not without controversy, Factura da Sorte could have a huge effect in boosting tax revenues in a country where small-scale tax evasion is common and widely accepted. Similar schemes have already been set up in São Paulo Province, Brazil, and in Slovakia and Malta. If the Portuguese plan – far larger than its European predecessors – proves a success, it could well provide a model for countries hoping to coax their businesses back into the tax-paying fold.

Here's how it's intended to work: When making a purchase, buyers can opt give their national Tax Identification Number to be recorded by the business they are buying from, and the business in turn must give them a receipt. Starting at a single coupon for a small purchase – three Euros is the possible starting point – customers will get coupons proportional to what they spend. Bank and utility bills, which include tax numbers as a matter of course in Portugal, will also be included, but the scheme is open to individuals only. All taxpayers will automatically become part of the lottery, unless they actively opt out. There will be a weekly televised prize draw, with additional draws on special occasions. The choice of imported gas guzzlers as the lottery’s prize has raised some eyebrows, but the government believes that the cost will be offset by a predicted 600 to 800 million annual boost to tax revenues.

The plan still has a major problem. While the state will benefit, a big chunk of its administration will fall on businesses who already feel themselves mired with bureaucracy. The Portuguese Hotel and Restaurant Association has claimed that the program will soak up a phenomenal 130 million work hours in 2014. Still, if the potential tax boost is as high as the government estimates, it also suggests that many businesses the association could do with taking tax bureaucracy a little more seriously.

For outsiders, it may seem incredible that there’s such a black hole in the country’s tax revenue in the first place. The fact is that small-scale tax evasion is commonplace across Southern Europe, and not because people necessarily set out to commit major fraud. Relationships between small businesses and their customers are often more friendly and intimate than is common in Northern Europe.  When these relationships are conducted on a level of chatty semi-friendship, it can seem quite normal to say "What’s your best price? Don’t worry about the receipt." Couple this with a widespread belief that officials are on the take themselves, and it’s easy to see how a them-against-us attitude develops. 

According to Transparency International, the Portuguese believe their state to be less corrupt that most Southern European citizens do, but at a ranking of 33rd least corrupt country in the world, their faith is hardly unshakeable.

It’s possible that not enough people will want to give up the concrete advantages of dodging sales tax via black transactions just for the small off-chance of getting a free car. But if creating a personal incentive for good fiscal citizenship actually manages to kick-start a cultural shift in Portugal, this could be just the first major part of an international wave.

Top image: A fish seller receives money and gives a receipt to a client at a market in Lisbon. (Jose Manuel Ribeiro/Reuters)

Feargus O'Sullivan covers Europe for The Atlantic Cities. All posts »

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