TAX REFORM
Dear friend readers and clients,
The Spanish government has just approved a limited,
progressive reduction on taxation which will come into effect in 2015 and 2016
and I would like to comment broadly on it:
1) The number of progressive income tax brackets is
reduced from seven to five, the maximum tax rate is cut from 52% to 45% and the
minimum tax rate will be 19%. Professional withholdings and rental income
taxation is cut from 21% to 19%. Reduction to 5 tax brackets and reduction of tax rates
taxable income
|
tax
rate
|
|
2015
|
2016
|
|
Up to 12.450,00
euros
|
20%
|
19%
|
From 12.450,00
to 20.200,00 euros
|
25%
|
24%
|
From 20.200,00
to 35.200,00 euros
|
31%
|
30%
|
From 35.200,00
to 60.000,00 euros
|
39%
|
37%
|
From 60.000,00 euros onwards
|
47%
|
45%
|
1) Savings will be taxable at a minimum rate of 19% (now
21%) and a maximum rate of 23% (now 27%). Lower tax rates, but progressiveness
remains:
taxable income
|
tax
rate
|
|
2015
|
2016
|
|
Up to 6.000
euros
|
20%
|
19%
|
From 6.000 to
24.000 euros
|
22%
|
21%
|
From 24.000 to
50.000 euros
|
22%
|
21%
|
From 50.000 euros onwards
|
24%
|
23%
|
2) The tax rate of the companies’ tax is reduced from 30%
to 25%, on the profit, which can even go down to 20% if 10% of the profit is taken
to the account of reserves for capitalization, among others; the tax rate for
entrepreneurs remains 15%.
Findings:
1.
The reduction is partial and insufficient. It is partly understandable
because our deficit still needs to be curtailed and the present reduction of
taxes entails an approximate cost of two billion euros. This cost can partly be
compensated with the expected positive effects on consumption –therefore, on
our GDP- by the increase of available income caused by the lower taxes. In
fact, Brussels does not seem very happy with such measures which are contrary to
the reduction of deficit because they would rather hear of an increase of
V.A.T. and cuts in social contributions.
2.
As usual, there will be small sprint in the reform, since it seems that
certain deductions are going to disappear, likewise the maximum reduction on
contributions to pension plans is going to be cut although it is going to be
compensated with the no taxation on saving or insurance products invested over
at least five years
3.
Most companies already pay a reduced companies’ tax because they are
very small companies –micro PYMES- so the cut in the tax rates is not going to
affect them.
Summing up, this reform is, in some aspects, an improvement which has
more to do with election propaganda rather than with effectiveness,
nonetheless, cuts in taxes are always very welcome.
