An increase on income tax for the highest earners, a hike on sales tax (VAT) for sugary drinks, new green taxes… The Spanish government has included a cocktail of fiscal measures in the 2021 budget, which has just been definitively approved by the Senate. The aim of the administration – a coalition led by the Socialist Party (PSOE) with junior partner Unidas Podemos – is to increase tax revenues during the coming year. The budget plan replaces the 2018 financial blueprint approved by the previous Popular Party-led administration, and which had been rolled over until now due to political gridlock.
Given the impact of the coronavirus pandemic, the government has opted to delay the root-and-branch fiscal reform that it had planned, while other measures have ended up being watered down or put on hold during the negotiations with other parties that were necessary to get the budget approved – the government lacks a working majority, and as such must do deals with smaller groups in order to pass legislation.
Despite these changes to its plans, the administration is hoping to raise an extra €5.5 billion in tax revenues in 2021 thanks to these new measures.
Income tax (IRPF). The government has included a two-point rise in tax rates for earned income exceeding €300,000 a year, and of three points for capital income above €200,000. These hikes are lower than what had been agreed by the PSOE and Unidas Podemos when they drew up their coalition agreement, which set the levels at €130,000 and €140,000, respectively. According to the Spanish Tax Agency, these measures will only affect 0.17% of contributors, and will allow for an increase in tax revenues of €580 million in 2022.
Sales tax (VAT). The budget includes a VAT rise for sugary and sweetened drinks, which will now be subject to a 21% rate compared to the current 10%. During the passing of the budget plan through Congress, this measure was also watered down, given that milk products have been excluded from the list. Before this change to the plan, which was an initiative of the Catalan Republican Left (ERC), the government had hoped to raise an extra €400 million between 2020 and 2021 with the measure, which was aimed at improving dietary habits rather than boosting revenues. Excluded from the 2021 budget, meanwhile, is the planned reduction on VAT rates for feminine hygiene products and veterinarian services, two proposals that were included in the coalition agreement but that for now will not be coming to pass. In November, however, the government did lower VAT on face masks – obligatory in public spaces in Spain due to the coronavirus pandemic – from 21% to 4%.
Company tax. Reforms to these levies have also been watered down compared to the commitments made in the coalition deal. The budget plan includes a limit of 95% of on the exemption on dividends from affiliates for groups who have revenues in excess of €40 million; those whose revenues are under that level will have a grace period of three years. According to the Tax Agency, this measure will affect 1,700 companies, 0.12% of the total number of firms who declare the tax, and will boost the public coffers by €473 million in 2021 and €1.047 billion in 2022. The proposal in the coalition agreement of a minimum company tax rate of 15% has fallen by the wayside for now. But what has gone ahead is a 15% rate on non-distributed dividends from so-called socimis, firms specializing in real estate investments, and who are currently exempt from paying company tax if they distribute less than 80% of their dividends among shareholders. The budget forecasts around €25 million in tax revenue in 2022 from this measure.
Green taxes. The government is planning to implement two environmental taxes – one for waste products and another for plastic packaging, which will generate €861 million and €491 million of revenues, respectively. Being new levies, these taxes will be created separately from the budget. What was included in the 2021 plan but was not eventually approved by Congress was a tax rise on the cost of diesel. The government has been planning for some time to reduce the credit enjoyed by this fossil fuel, a change that it included in its draft budget plan with revenues forecast of €500 million in the next two years. But the opposition of the Basque Nationalist Party (PNV), a key ally of the government in Congress, saw the plans come to nothing. Registration tax for new vehicles will, however, rise in 2021 due to a new regulatory system for the measurement of emissions.
Wealth tax. Another change contained in the budget is the indefinite introduction of wealth tax. This levy, which was scrapped in 2008 but reintroduced on a temporary basis during the financial crisis, has been renewed on a yearly basis since 2011 but now will become permanent. The government has also raised the rate from 2.5% to 3.5% for fortunes in excess of €10 million. The increase in expected state revenues for this measure, however, is zero, given that this taxation is managed by Spain’s regions, who have the power to credit it to the taxpayer up to 100% of its value – something that happens in Madrid, for example. The agreement that the government reached with ERC, however, in exchange for approving the accounts, includes working toward fiscal harmonization across Spain’s regions. There has not yet been a specific proposal to this end, but Finance Minister María Jesús Montero has already suggested that one solution could be setting limits so that the regions have to set the rate between certain limits. This could also end up being applied to taxes covering inheritance and gifts, which are also in the hands of Spain’s regions.
Pension plans. The government will be reducing tax relief on contributions to individual pension plans. The maximum limit for deductions on contributions made over the fiscal year will fall from €8,000 to €2,000. For collective plans, however, the limit will rise from €8,000 to €10,000. This measure, which the Tax Agency estimates will boost revenues by €490 million between 2021 and 2022, was included in the budget plan after Spain’s Fiscal Authority (Airef) concluded that the fiscal benefit of these products is regressive, given that they favor the highest incomes, and do not meet their objective, which is to encourage private saving.
Insurance premiums. The 2021 budget also includes a rise from 6% to 8% on the rate applied to insurance premiums. The government hopes to raise €450 million in revenues from this change in 2021.
Google and Tobin taxes. These two new levies were created separately from the budget plan, and are expected to come into force this coming year. The former will see a 3% rate for large firms – with revenues in excess of €750 million on a global level and revenues in Spain of more than €3 million – for online advertising and intermediation services and the sale of data based on information from users. The government hopes to raise €968 million from these measures in 2021, although their reach depends on the international context: it is still unknown how the new administration in the United States will react, given that it is the home of many of the major tech firms, or whether a global deal will be reached on the issue in the Organisation for Economic Co-operation and Development (OECD). The Tobin tax, meanwhile, on financial transactions, will see a levy of 0.2% on operations involving the sale or purchase of shares in listed Spanish companies and that have a capitalization of more than €1 billion. This new tax, the government says, will boost revenues by €850 million in 2021.
Tax fraud law. This law has also been created on the margin of the budget plans, and is expected to raise €828 million next year. Among the main measures included is the reduction in permitted cash payments from €2,500 to €1,500 between companies, and the prohibition of tax amnesties.
English version by Simon Hunter.