tax system


tax system
   Spain's tax system is, from 1998, in the process of being reformed. The number of income tax brackets was reduced from eighteen in 1996 to ten in 1997, and a further reduction to six was proposed in 1998. Prior to these reforms, rates ranged from 20 percent on annual income of 400,000–600,000 pesetas to a top rate of 56 percent on income above 9.55m pesetas. Subject to improvements in the overall budget deficit, the government planned to reduce the top rate further, to between 40 and 50 percent, by 1999. Since 1995, tax tables have been adjusted annually for inflation.
   Spain also has a net worth tax which can bring the top marginal rate to 70 percent for highincome taxpayers with large assets. For variableincome investments, tax tables have been adjusted for inflation since 1992, but for fixed-income investments there is no such adjustment. This sets Spain apart from other EU countries. The corporate tax rate is 35 percent, around the EU average. Profits or dividends generated abroad are taxed in Spain, which is unusual in the EU. While there is no double taxation of dividends for corporations, individuals still face some double taxation. Capital gains are taxed with no period of exemption, and accelerated depreciation is not permitted.
   Spain adopted the EU value-added tax (Impuesto de Valor Añadido—IVA) in 1986 and the average rate in 1996 was 16 percent. Excise taxes are levied on tobacco and alcoholic beverages, petrol, diesel fuel and some forms of transportation.
   Fiscal pressure in Spain, i.e. total tax receipts as a percentage of GDP, has risen faster than in any of the main EU countries since the mid-1980s, but is still slightly below the EU average (35.99 percent in 1994, compared with an EU average of 42.27 percent). The figures are misleading, however: massive tax fraud in Spain (equivalent to about 5 percent of GDP, according to official estimates) leaves the salaried middle class with most of the tax burden. Spain's regional and local governments administer some specific taxes to help finance their activities, e.g. on property, gambling, legal documents and net worth (except the Basque and Navarre regions, which collect and administer all taxes). Since 1994, each autonomous region has been permitted to administer 15 percent of all withholding tax revenue collected locally, in an effort to encourage the regions to share responsibility for their own financing. This process was accelerated in the Basque country and Catalonia after the accession to power of the minority centre-right PP government in 1996. As a condition of support, the Basque nationalist PNV consolidated full fiscal autonomy. In Catalonia, the CiU obtained an increase in the proportion of tax administered within the region to 30 percent, and continued to press for the same concessions as the Basques.
   The tax system is evolving rapidly: between 1986 and 1996, there were some 3,000 changes in the detail of the regulations. Experts have recommended reforms to yield a system of full fiscal co-responsibility, where regions would add their own surcharges to the basic national withholding tax rate, and adjust these according to their needs. The PP has proposed moving in this direction, to avoid the deficit spending inherent in the previous system, where the central government collects most of the taxes and redistributes them to the regions to be spent.
   Further reading
   - Chislett, W. (1998) Spain: The Central Hispano Handbook, Madrid: Central Hispano (pp. 23– 5 give a concise summary of the tax system, with useful graphs which give a succinct comparison with the EU).
   GAYLE ALLARD

Encyclopedia of contemporary Spanish culture. 2013.

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