Spanish Legal Actuality in a simple lenguage

¿What will be with the tax reform (in Spain)?

As the reader might know, we are before the possibility of changing the Fiscal Law paradigm in Spain, country that the reader also knows, suffers terrible misalignment’s in this area of Law. Likewise in Spain the direct taxation (Personal Income tax and Corporate tax) is really high, and the social contributions (what the company pays for having you employed) are also high. Beside those direct taxes, the indirect taxation (V.A.T.) is not so elevated in comparison with other countries of the area.

Oversimplifying the analysis, we can describe its effects. An elevated direct taxation subtracts a lot of resources from individuals and companies, resources that in any other case would be ending in consumption in any of its forms, like the purchase of a car or eating out in the individuals scenario, or on the other hand, in the case of a company, investing more in R+D or paying more to its employees. On the other side, exaggerated social contributions discourage employment, given that for each employee one has not only to pay his/her salary, but also much more, the principal cost of a company, the wadges, are `fattened´too much with amounts that do not go to the pockets of the workers, but to the Social Security.

Clarified the aforesaid, we pass to describe very briefly the tax reform that the Commission of Experts (headed by Manuel Lagares) are proposing to the Government of Spain and that, at least for now, I support. All in all what is proposed y counteract the pernicious effects that we just described in two phases. The first one would consist in lowering direct taxation so more cash enters in the personal bank accounts of individuals and companies after the payment of the personal income (IRPF in Spanish) and Corporate taxes. Simultaneously to that and to compensate the decrease of income, some indirect taxes would be reenacted (for example a products taxed in the minimum scale would be in superior scales and the rise in special taxes (like Tobacco and Gas). On the other hand, the second phase would consist in lowering social contributions and compensate the descent with the rise of the VAT in a couple of percentage points, equating the tax to the surrounding countries of the region.

As we can see the reform would be directly targeted to mitigate the two adverse effects early described; the first and foremost focused on consumption and the second one on employment. Will see how this ends.

by: José María Blanco

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