The day has come to learn the conclusions of the committee of experts on tax reform. The group of professors who received the commission from the Government last year has published its White Paper this Thursday, in which it makes dozens of proposals aimed at improving State income and reviewing tax expenditures such as benefits, deductions or bonuses. The committee has concluded, among the general proposals, the need to unify VAT, reduce the benefits that are applied in personal income tax or seek a common minimum in the Wealth tax.
The problem of Corporation Tax: it collects 40% less than in 2007
As far as VAT is concerned, the group concludes that Spain loses a lot of income from the multiple products and services associated with reduced and super-reduced rates. It proposes its elimination, resorting to a common rate, which could be smaller than the current general rate. Of course, with the need to create compensation for low incomes, preventing this tax from being clearly regressive. The committee understands that it is a measure that requires a long period of time to carry it out, so it proposes while reviewing whether each of the reduced rates is justified. The president of the committee, Jesús Ruiz-Huerta, acknowledges that today this measure would be “unfeasible” if this compensation system is not applied first.
The other aspect refers to personal income tax. The committee of experts proposes a review of the bonuses that exist for this tax, in order to expand the tax bases and increase collection. Of course, it proposes to maintain the reductions that exist for the use of health or private education. Other issues such as the reduction for joint taxation or real estate leases would be reviewed or eliminated during the reforms proposed by the committee.
The third of the aspects refers to the taxation by the Wealth Tax. The committee defends that this tax should be maintained, in the face of requests from the Spanish right in favor of eliminating it. Although, it proposes modifications for its “modernization”. Thus, it points out the need to increase the exempt minimum up to one million euros to pay taxes only on the highest net worth. One of the main issues that the committee had to address was the issue of harmonization. “We have had to carefully face how to guarantee a certain balance in the distribution of powers and autonomy. It is a large-scale problem. The drift we have witnessed has been a downward competition. We are emptying these tributes of content” , Ruiz-Huerta lamented. For this reason, they propose the creation of a common minimum to “avoid its emptying”.
The experts accept as their own the change in the international discourse on this tax and the growing concern about the increase in inequalities. Various international organizations have advocated increasing this type of tax. Thus, an attempt is made to ensure that there is no “defiscalization” of this tax and the Inheritance Tax. “The defense of nuances of the principle of autonomy cannot lead us to the emptying of property taxes, and unfortunately that is where we are going,” added the coordinator of the study.
Another of the fundamental fields on which the committee of experts focuses is environmental taxation, a tool with poor implementation in Spain compared to other European countries. Among the 118 measures proposed in this section by the White Paper, an equalization of the taxation of gasoline and diesel is proposed. The Government already raised this implementation in the 2021 Budgets, but the negotiation with the PNV led to its elimination from the final text. An increase in taxation on transport emissions is also proposed. Likewise, tax reductions are included in the field of taxes on electricity.
In the field of Corporation Tax, experts have advocated not applying the minimum rate of 15% on the profit of companies, but on the tax base. That is to say, that it is not made on the final result of the company, but on that benefit after applying different reductions and bonuses, which in practice reduces tax revenue. However, they do propose that the tax benefits that affect the Corporation tax be reviewed to reduce those that are not justified. In addition, it proposes greater control to prevent people from using companies to reduce their taxation or international tax avoidance by companies.
An assignment of almost a year
On April 12, 2021, the Treasury formalized an assignment to a group of 17 tax experts to design the new Spanish tax system. The Ministry gave a deadline of February 28 for the deliberations of this group, which have ended with the preparation of the white paper. It is a commitment that Spain had assumed with Brussels for the reception of European recovery funds after the pandemic, in order to find and solve the problems that weigh down the tax system in Spain.
Once the document is presented, the legislative journey is ahead. The Government must assume which parts of the conclusions of the committee of experts it accepts and undertake the normative changes that are necessary to apply them. The Ministry of Finance has repeatedly explained that it would wait to know these conclusions before assuming changes in the Spanish tax system and that it will match decision-making with the economic situation. A macroeconomic context that has been affected until now by the crisis caused by the coronavirus, to which the strong growth in inflation has recently been added and to which the consequences of the war in Ukraine are now expected to be added, as warned by the President of the Government himself, Pedro Sánchez, this Wednesday in Congress.
The tax burden in Spain during 2020, the last year with comparable data for all of Europe, was 36.8%. This concept measures the weight of tax revenues over the national GDP. Although during the pandemic, the fall in GDP and the maintenance of tax revenues caused this figure to increase, Spain is still below the community average, which was 40.2%. Spain is significantly below the other large economies on the continent, such as France, Germany and Italy.
The fiscal reform has been one of the battle horses that have confronted the two partners of the coalition government in recent weeks. Podemos opted to present its own project for changes to the tax system, first in a party act and later in Congress with a proposal that was rejected by the PSOE. The Minister of Finance, María Jesús Montero, came to brand the proposal as “untimely” for not having waited for the experts’ report. Podemos estimated the increase in tax revenue at 30,000 million and proposed issues such as the replacement of Wealth with a wealth tax, an increase in tax pressure on large companies or raising personal income tax for high fortunes.