Fuel Tax Bites Hardest on Middle-Income Households, and 39 Percent of Portugal's 781 Tax Breaks Carry No Cost Estimate, FFMS Study Finds
A Fundação Francisco Manuel dos Santos study finds car-owning lower-middle earners carry the heaviest fuel-tax load relative to income, counts 781 tax breaks with 39 percent never costed, and says IRS is less progressive than it looks.
Households in the lower middle of Portugal's income scale, not the poorest, spend the largest share of their income on fuel and so carry the heaviest relative burden of the fuel tax (ISP), according to Portugal Fiscal, a policy paper published on 28 October by the Fundação Francisco Manuel dos Santos (FFMS). The study, by Sérgio Vasques (Universidade Católica), Susana Peralta (ISEG) and José Pedro Sousa (Nova SBE), maps the tax system in 2025. It also counts 781 active tax benefits, nearly two in five of them with no estimate of what they cost.
Fuel: the car-owning middle pays most
Using INE's 2022 household budget survey, the authors find spending on fuel, as a share of gross household income, peaks between the 20th and 40th percentiles of the income distribution. The poorest rely more on public transport, they suggest, so families on middling incomes who run a car bear the largest ISP load relative to earnings. Tobacco and alcohol duties, by contrast, weigh most on the poorest.
In 2025 excise duties raised about 6 billion euros, around 9 percent of tax revenue excluding social security contributions, and ISP alone brought in more than 3.7 billion euros. Car and fuel taxes matter less to the budget than they did: the study puts their share of tax revenue at 6.3 percent in 2025, against 14 percent in 2004, which it attributes to the electrification of the fleet. Of light cars registered in 2025, 21 percent were electric.
781 tax breaks, many never measured
Drawing on the government's 2025 Tax Expenditure Report, the study counts 781 active tax benefits: about 28 percent worth more than 1 million euros each, 33 percent worth less, and 39 percent not quantified at all, mostly small ones. Total tax expenditure was estimated at 23,477 million euros, about 60 percent of it from reduced VAT rates. The Court of Auditors, in its opinion on the 2024 State accounts, estimated that about 64 percent of IRS benefits and 60 percent of VAT benefits carry no figure.
The non-habitual resident (NHR) regime, closed to newcomers in January 2024, still accounted for 1,854 million euros of IRS tax expenditure in 2025, because people already in it keep their rights, though the authors doubt that sum would return as revenue if it ended. Its successor, IFICI, cost 9 million euros. In 2023, 93 NHR beneficiaries owed a combined 17 million euros in tax debts.
IRS: progressive, but less than it looks
IRS is strongly progressive, the authors say: households declaring more than 50,000 euros gross a year, just 7.6 percent of the total, paid 56 percent of the IRS assessed, while 2.7 million of about 6.2 million households (45 percent) owed no IRS in 2024. But progressivity is overstated, they argue, because interest and dividends taxed at source at a flat 28 percent are not recorded on returns, so income at the top is understated. Health and education deductions also rise with income.
What it means for you
- No rules change. The paper (a free PDF in Portuguese) opens the FFMS "Fiscalidade e Futuro" series; four more papers follow. It lands as Parliament holds its first vote on the 2027 budget.
- Drivers: the temporary fuel-tax discount runs until 31 December.
- Savers: as Lusa notes in its report on the study, taxpayers may choose to add interest and dividends to their other income so the progressive rates apply instead of the flat rate; it is an option, not an obligation.
- NHR and IFICI holders: see how few people have joined the replacement regime so far.
