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Spanish Experts Call For Huge Direct Tax Cut

by Ulrika Lomas, Tax-News.com, Brussels

17 March 2014


Spain's Experts Committee on Tax Reform has advocated substantial cuts to direct taxes and social contributions, which would be funded through a reduction in tax expenditures, and environmental and indirect tax hikes.

The influential experts' report was submitted to Finance Minister Montoro. First, the committee said that the number of personal income tax brackets should be reduced to a maximum of four, in line with European and worldwide tax norms. It said that the rate and threshold of the top rate of income tax should be lowered, and should not exceed those in place on average in the European Union (EU).

Next, the committee recommended a progressive cut in the corporate tax rate from 30 percent to around 20 percent, and a reduction in corporate tax shelters to bring effective corporate tax rates closer in line with statutory rates.

In parallel, the committee advised that the current special regime for small companies should be eliminated, arguing that it deters companies from growing and benefiting from economies of scale, with adverse effects on productivity.

The committee also suggested a cut in social contributions to reduce the cost of labor for employers, thereby fostering job creation.

To finance these measures, the committee insisted that indirect levies should be raised, for example the taxes on tobacco and alcohol. It also said that the tax rate on diesel fuel should be brought into line with the petrol tariff within a short period.

Further, the committee called for some products and services subject to the 10 percent reduced rate of value-added tax (VAT) to be raised towards the standard rate, with the exception of VAT for housing, the tourist sector, and public transport services.

Finally, the committee proposed eliminating wealth tax, and transfer and stamp duty, and called for a far-reaching reform of the country's real estate tax (IBI).

Responding to the recommendations, Spain's small business association CEPYME said they represent a missed opportunity to support small- and medium-sized enterprises. Progressively lowering the IS rate from 30 to 20 percent over an unspecified period of time will be damaging to small businesses, which account for over 99.5 percent of the national business fabric, CEPYME said. It noted that the effective SME corporate tax rate is currently between 20 and 25 percent.

The SME association also said that corporate tax deductions and exemptions should be preserved if they have a "positive impact on business activity and employment," arguing that these prop up revenue collections.

TAGS: environment | Finance | tax | small business | business | value added tax (VAT) | property tax | employees | corporation tax | environmental tax | excise duty | tax rates | Spain | tax breaks | tax reform | individual income tax | European Union (EU) | services | Europe | Tax

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