Distribution surprised by new tax

By Daniela Soares Ferreira and Sónia Peres Pinto

After energy drinks, the focus was also on distribution. The Prime Minister announced this week that the proposed law that the Government will present for the taxation of windfall profits will also include the large distribution sector. A news that fell like a bomb with those responsible for the sector, but that could calm public opinion in the face of the results announced by the various companies throughout this week. And the numbers speak for themselves. Galp had profits of over 600 million euros up to September, EDP 518 million – despite the activity in Portugal having posted losses of 181 million – and Jerónimo Martins profited 419 million, among many others.

At Nascer do SOL, Gonçalo Lobo Xavier, director-general of the Portuguese Association of Distribution Companies (APED), says that he found out «at the same time as the country», showing surprise at this decision, since, until date, the Government never spoke to the entity. “We don’t know to what extent this has been very thoughtful. The truth is that it has no parallel with the recommendations of the European Commission, which was very clear about this taxation for a specific sector of the economy and with a very specific reason”, he stresses. But he leaves a guarantee: “We are reflecting on this and as a sector we are awaiting information and explanations from the Government on this matter. We don’t really know how it’s going to happen.”

The official also stated that “there was nothing extraordinary that contributed to the results of the companies” and that the sector is faced with “a huge growth in the costs of production factors throughout the chain and that has not been transmitted to consumers” . And in relation to food retail, he recalled that it is a business with very low margins, in the order of 2% to 3%. «There is no extraordinary factor, nobody is satisfied with the scarcity of raw materials, with the increase in the cost of production factors, with the war, with the instability that all this is causing in the economies».

Electric companies based in Spain will not escape this extraordinary tax either. «Although EDP Renováveis’ headquarters are in Spain, the company will also be covered by this measure. Just look at the case of Iberdrola, which is also based in Spain and will be covered by this measure”, says Henrique Tomé, an analyst at XTB.

Minimize public opinion?
António Costa Silva was the one who took the starting shot in relation to the possibility of moving forward with this tax on extraordinary profits, but over the weeks he was backing off, even recognizing that companies were not prepared. But the measure ended up being made official by Fernando Medina during the presentation of the State Budget proposal, guaranteeing that it would even advance this year. Now, António Costa has expanded the range in relation to the companies covered.

A measure that does not surprise Henrique Tomé. “It makes sense to move forward with these increases in taxes on extraordinary profits of companies that have benefited from the effects of inflation and should serve to support the support measures put forward by the Government”, he told Nascer do SOL.

However, he recognizes that it is a controversial topic, «given that government support is significantly lower when compared to that applied in other eurozone countries and this is noticeable when we analyze the impact that these expenditures have in relation to GDP».

But he also recalls that the net results of energy companies have increased substantially, due to the increase in the prices of natural gas and oil. «This situation is causing discontent among companies, and in this part there is a clear mismanagement of the situation on the side of the Government». He has a contrary opinion regarding the taxation of distribution companies: «I believe that this measure should be studied better, because, unlike other energy companies, these extraordinary taxes could seriously penalize the sector».

João César das Neves had already guaranteed that an exceptional situation could justify the measure, but recalled that the difficulty is to determine this exceptionality. “Some governments in a more precarious political situation, as in Spain, Italy and the United Kingdom, have to please public opinion and resist populist pressure with greater difficulty. This shows less the wisdom of the measure than the political fragility of these countries», he admitted.

solid companies
Gonçalo Lobo Xavier also recalled that the distribution sector signed a collective bargaining agreement with the union, in which, on average, more than 5% of the salary scale was increased, regardless of the value of the national minimum wage. «It seems a little demagogic to me that we are saying that companies have great results and that people are feeling sick. Unfortunately, we have a country that is not rich, but that needs solid companies that create value and that, even many of them, have the ability to internationalize”, he said, adding that “looking at the results of companies with a feeling of discomfort seems to us which makes very little sense at a time when what we need is strong companies».

Profits scandalize
EDP ​​saw profits rise to 518 million euros in the first nine months of the year, despite activity in Portugal having been penalized by extreme drought and high electricity prices in the Iberian wholesale electricity market.

EDP ​​Renováveis ​​followed suit in increasing profits, which, in this case, soared 181% to 416 million euros. And he says that the “solid” and “robust” results in this period were “mostly” influenced by the increase in sales prices and energy production.

This is followed by Iberdrola, which saw profits increase by 29% to €3,104 million by September. And he says he wants to reach the end of the year with record profits: 4200 million.

In turn, Galp recorded profits of 608 million euros in the first nine months of the year, which represents an increase of 86% compared to the same period last year. And he says that the results “reflect strong operational performance in all business segments”. Repsol, on the other hand, saw profits soar 66% to €3222 million by September. And he says that these results are allowing him to “partially offset the losses” of 2019 and 2020.

Jerónimo Martins recorded, in the first nine months of the year, attributable profits of 419 million euros, an increase of 29.3% in relation to the same period of the previous year.

For now, only the owner of Pingo Doce has reacted, saying that the company is not making excessive profits. «In Portugal, we have the highest rates applicable to corporate profits and we do not know how the law will affect the said unexpected profits. Unfortunately, in Portugal, we do not see an increase in profits that would allow us to say that we are having extraordinary or exceptional profits. But we have to wait and see what the impact of the law will be, it will depend on the design of the law that is published”, said the company during the presentation of results.

This extraordinary tax has been applied in several European countries. Germany and Spain have already decided to tax the profits of companies in the energy and banking sector, as have Italy, the United Kingdom, Slovakia, Bulgaria and Romania.

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