Tax reform in Spain: Gov advances Personal Income Tax cuts and Bank of Spain urges to rise VAT

By Francisco López | The Spanish government plans to pass the tax reform on Friday. According to media leaks, Minister for Finance Cristobal Montoro devised a reform tackling PIT, corporate and special taxes, without modifying indirect taxes, just as the IMF, EU,  Bank of Spain and finance experts asked.

There is no worthy tax reform lacking of tax cuts for lower income groups. What PM Rajoy’s government prepares is not an exception and, apparently, it will also include a reduction for those making the biggest income.

Press report maximum rate for PIT would drop from 52% to 50%, as Moncloa believes a rate above 50% to be confiscatory. We still need to figure out where the lost income will be made up.

Spanish tax burdens are below European’s average and most experts, included analysts from leading national and world economic organisms, urge the government to raise indirect taxes. The last one to do so was the head of the Bank of Spain, Mr Luis Linde, on the powerful argument that Spain needs to cut its public deficit by €55bn in 2017.

Bank of Spain’s proposal include also the reduction of labour taxes, particularly social contributions and improve the pressure on capital income. It also suggests to end with bonuses, reductions and tax exemptions as well as to move forward in neutrality of income savings.

 

Taxes simplication is welcome, as long as doesn’t affect total collection. Surprisingly, the government wants to reduce taxes to the highest earners although it faces a multimillion-deficit in the next years. Especially as most lower income groups struggle to access some basic services and are enduring salary cuts despite the emerging recovery.