The revenue forecast made by the previous Government was always moderate. The latest statements by Finance officials point to a sum of between 50 and 100 million euros with the extraordinary tax on so-called excessive profits. But this estimate, the Observer knows, was related to the collection in the two years in which this European tax is in force, which further reduces annual revenue.
Described as “temporary solidarity”, this contribution in Portugal was applied to two sectors: oil and food distribution. For now, the collection data that exists only relates to profits recorded in the year 2022 and the revenue will be in the region of one or two tens of millions of euros, according to information collected by the Observador. The collection is expected to increase in 2024, but these amounts can only be measured after the contribution for the year 2023 has been paid, the deadline for which is September.
But the values will be substantially below the forecasts made at the time the rate was approved, particularly by the main target. Galp Energia began by publishing an estimated impact of around 100 million euros at the end of 2022. This was the expected impact on fuel refining and marketing operations in Portugal only for the 2022 fiscal year.
Cost calculation
When the accounts for that year were released, the costs calculated by the oil company were already more modest — the provision made was 53 million euros and to accommodate taxes payable in Portugal and Spain where this tax on windfall profits (profits falling from the sky) took over the entire energy sector, including electrical production. Galp has always refused to clarify the value relative to Portugal. This happened again in the 2023 report and accounts, in which an amount of 95 million euros was recorded for the tax on extraordinary profits from last year, but without specifying the amounts relating to each geography.
In a more detailed consultation of the document, it is clear that these 95 million euros are divided between two activities — the upstream (English expression for the exploration and production of oil and gas) — and commercial. The activities of upstream of Galp are the most affected with a predicted tax of 64 million euros. But as they are carried out outside Portugal — mostly in Brazil — this means that the main portion of the tax on unexpected profits for 2023 will not be charged at national level. This leaves an estimated 31 million euros for this type of tax at Iberian level, the division of which between Portugal and Spain Galp continues to not reveal.
The largest national distribution companies did not hesitate to disclose the amounts they paid or expect to pay. Sonae, owner of Modelo Continente, calculated a payable amount of 1.3 million euros for 2023, according to financial administrator João Dolores when presenting last year’s accounts. And he intends to dispute the payment. At Jerónimo Martins, the accounts made for 2022 pointed to 700 thousand euros and those for last year indicate a lower fee whose payment the distribution group also intends to contest, similar to Sonae’s position.
Taxes on excessive or “fall from the sky” profits were introduced from 2022 in response to rising prices in some sectors and the need to finance public policies to counter this effect and compensate consumers.
The discussion began in energy with the sharp escalation of the war in Ukraine, but extended to other high prices that were dragged down by inflation and also to banking due to the rise in interest rates. The socialist government in Portugal was one of those that most resisted this trend. Partly because sectors such as banking and energy are already taxed with extraordinary contributions that have persisted over time, but also because there were doubts about the effectiveness of these measures in terms of revenue.
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Pushed by a European regulation that forced the collection of this tax in the oil sector, the Socialist Government had to give in and created at the end of 2022 the temporary solidarity contribution that it extended to the distribution sector.
In 2023, the socialists applied the zero VAT rate to a basket of food products, a measure that they also began to discard, signaling the fear that the tax reduction would be cannibalized by an increase in margins, without benefits for consumers. The application of the tax on excessive profits to the sector was further pressure on companies to reflect zero VAT in final prices, which happened, according to a study released by Banco de Portugal. This conclusion ends up being reinforced, given the reduced amounts of the fee to be paid by the two largest companies in the sector, signaling that the rise in profits to extraordinary or excessive standards was not verified.
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In the case of Galp, and as was highlighted by the company itself from the beginning of the discussion, the revenue from a fee of this nature would always be limited by the geographical distribution of the operations that most increased profits and which are outside Portugal — exploration and oil production.
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However, and contrary to what the values recorded by the company in the 2022 and 2023 accounts suggest, Galp is expected to pay more this year in tax on these extraordinary profits, this is because the activity which includes the refining and marketing of fuels registered a more positive results performance because in 2022 some effect of the pandemic was still felt in this sector.
Industrial division and midstreamwhere refining operations
The industrial division and midstreamwhere refining operations are located in Portugal, recorded a jump in profit before taxes from 66 million euros in 2022 to 693 million euros last year, although a large part of this increase is the responsibility of trading (purchase and sale) of natural gas. The result of the commercial area grew almost 100%. Last year, Galp recorded a profit of one billion euros, a growth of 14% compared to 2022. It was in this year that Galp saw profits almost double to 881 million euros, but on the back of the appreciation of oil whose production did not is taxed in Portugal.
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Jerónimo Martins announced profits of 756 million euros last year, 28.2% more than in 2022, the year in which consolidated net results rose 27.5%. The group has activities in Portugal, Poland and Colombia.
Distribution is Sonae’s most important business, which in 2023 presented a profit of 357 million euros, 6.4% more than in 2022. In 2022, profit grew 28% to 242 million euros.
Excess profits were considered to be the part of the results that represents a 20% increase in relation to the average of taxable profits in the four years between 2018 and 2021. Taxation consisted of a rate of 33% applicable to the portion of the taxable income that is in the 20% slice. .
The tax on unexpected profits applied among us lasted for two years, the last of which was 2023, but there are several parties, especially to the left of the PS and Chega, that defend the creation of taxes on excessive profits in sectors ranging from energy to banking, including distribution and telecommunications.
