Spain: 2015 Tax Reform Development of public revenues and - PowerPoint PPT Presentation

Spain: 2015 Tax Reform

Development of public revenues and expenditure in Spain (1995-2017) 2

Tax Revenue Recovery GDP real growth and tax collection (% annual variation) Jan-Jun 2009 2010 2011 2012 2013 2014 Source: AEAT Annual growth -17,3 10,4 1,1 1,9 3,8 5,0 homogeneous tax revenues 3

Annual and cumulative effect on GDP and other macro variables (deviations in percentage points of the REMS (*): Simulation assumptions Macro variables value of each variables without reform) Year Year Year Year Year t t+1 t+2 t+3 t+10 GDP 0.31 0.52 0.69 0,84 1.14 Private Consumption 0.23 0.46 0.67 0.40 0.61 Various shocks applied on taxes are simulated on a permanent basis: Gross Capital Formation 1.53 1.59 1.29 2.02 1.74 • PIT reform on labour income • PIT reform on savings income Net Exports (%/GDP) -0.17 -0.16 -0.10 -0.05 0.06 • CIT reform Employment (employed) 0.21 0.51 0.68 0.77 0.57 • Boscá J.E., Domenech, R., Ferri J, and Varela J. (2011). The Spanish Economy. A General Equilibrium Perspective 4

Goals and relevance Budget implications Impact • To boost job creation. Reducing taxation on income from labour and to strengthen competitiveness  Rising taxpayers disposable income • To revitalize the economic growth. EUR 9,000 million enabling an Modernizing the tax system to additional GDP growth of 0.55% (ex  20 million taxpayers will have higher promote savings & investment ante). • Moving towards a more equitable tax monthly disposable income  Given the induced effect on growth, system. Highest reduction for low and expected revenue reduction EUR middle incomes, social benefit for 6,900 million (ex post). families with children and/or disabled members, and new measures to fight against tax fraud  12.5% average tax reduction in two years  23.47% final average tax reduction  Ex post impact: for taxpayers below EUR 24,000 o – EUR 2,535 million in 2015 ( 72% ) o – EUR 1,984 million in 2016  • Personal Income Tax: Revenue Costs 31.06% final average tax reduction o – EUR 634 million in 2017 for taxpayers below EUR 18,000  Ex ante impact: ( 58% ) o – EUR 6,391 million (2015-16)  Reduction of the tax wedge  More than 1,6 million taxpayers no longer will have to pay PIT 5

Goals and relevance PIT: Tax measures  General reduction of PIT rates for all taxpayers, progressively during 2015-2016  PIT brackets reduction: from 7 to 5  PIT marginal top rate: from 52% to 45% in 2016  Contribution to economic growth: PIT marginal lowest rate: from 24.75% to 19% in 2016 • lower taxes on labor income  Earned income tax allowance changes: o EUR 2,000 general allowance for all taxpayers o EUR 3,700 for incomes below EUR 11,250, being phased-out for incomes over EUR 14,450 Contribution to economic growth:  Lower withholding taxes for the self-employed: 21% to 18% in 2016 • strong support for the self-  15% withholding applies for self-employed income below EUR 15,000 employed Reduced employers SSC Contribution to job creation • Exemption of EUR 500 monthly for new hirings during 24 months  Sharp increase in personal and family allowances: up to 32%  3 new non-wastable tax credits (up to EUR 1,200 per year) for Moving towards a more equitable o Large families with dependent relatives tax system: • Protecting disadvantaged o Large families with disabled dependent relatives groups o Single taxpayers with two children  Taxpayers may claim for an advance monthly payment from the STA 6

Goals and relevance PIT: Taxation of savings  Reduction of tax rates for saving income and higher progressivity for saving income over EUR 50,000 o 20% to 24% for 2015 Promotion of neutrality in the o taxation of savings 19% to 23% for 2016  No longer distinction between long-term/short-term capital gains/losses  Real state income included in the savings tax base  A new “ long-term savings plan ” with income exemption if channeled through deposits/life insurance for annual contributions up to EUR 5,000 and at least during 5 years  CG exemption for assets transfers (up to EUR 240,000) made by taxpayers over 65, Fostering individual savings provided the proceeds are reinvested in a life annuity  Pension Plans may be redeemed after 10 years  Reduction in the duration of Individual Systematic Savings Plans (10 to 5 years)  Lower ceiling in pension plans annual contributions (EUR 8,000)  EUR 1,500 exemption for dividends suppressed (fully taxation)  Tax-exempt amount for severance payments limited to EUR 180,000  Property lease income reduction up to 60%  Inflation adjustments on capital gains suppressed Promotion of tax neutrality  Abatement coefficients on capital gains for transfers over EUR 400,000 per taxpayer suppressed  New exit tax for taxpayers with significant shareholdings  Hard-to-justify deductible expenses are homogenized 7

Goals and relevance CIT: Tax measures  CIT rate reduction: from 30% to 28% in 2015, and 25% in 2016  Tax measures promoting deleveraging and balance sheet repair  Contribution to economic growth: Maintaining current limits for interest deduction: 30% of operating profit improving the competitiveness of  A new capitalization reserve (as a reverse incentive of leveraging) is introduced. Spanish companies Corporate tax base may be reduced by 10% of annual profits allocated to an non- distributable reserve in company equity, which must be kept for 5 years  SMEs may also reduce their positive tax base up to 10% by setting up an equalization reserve , with a maximum of EUR 1 million, for offsetting future tax losses with a limit of Stimulate economic growth: five years. strong support for SMEs  SMEs tax rate is only 20% If applied jointly with the capitalization reserve  R+D+I taxpayers may claim for an advance refund above the current limit of EUR 3 million Stimulate economic growth:  A new tax credit on film productions, live entertainment and other theater activities is incentives for industrial, R&D granted investments and cultural activities  Increased tax incentives for sponsorship, promoting fidelity in contributions 8

Goals and relevance CIT: Tax measures CIT reform introduces some measures aimed at broadening the tax base and to close the gap between nominal/effective tax rates  Assets depreciation tables are simplified  Impairment losses of investments in different assets no longer deductible  Broadening of the CIT base Monetary adjustment coefficients suppressed  Customer/suppliers attention expenses subject to a limit of 1% of turnover  Former tax credits for environmental research and profit reinvestment suppressed (replaced by the capitalization reserve)  Financial expenses constraints ( 30% of annual operating profit, and further restrictions on deducting interest expenses related to the acquisition of entities  Limitations on offsetting loss carryforwards. Since 2017, 70% of the tax bases prior to the Correcting debt bias in the CIT, application of the capitalization reserve and the offsetting of tax losses and additional tax measures to  Capitalization reserve ( 10% reduction in the tax base of the equity increase in the prevent that taxation hinder preceding tax period) the smooth operation of the  Spanish domestic market Equalization reserve for SMEs ( 10% reduction in the tax base with a limit of EUR 1 million)  Harmonization in the tax treatment of double taxation resident/non-resident entities 9

Budget implications CIT Impact  CIT rate unification helps to remove existing  Ex post impact: disincentives to SMEs growth. No longer o – EUR 87 million in 2015 o distinction in tax rates for SMEs – EUR 2,341 million in 2016 o  – EUR 59,5 million in 2017 Intended to reduce corporate debt. New  Ex ante impact: incentives aimed at the financial deleveraging are o – EUR 3,078 million (2015-16) introduced 10