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)

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Tax Revenue Recovery

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GDP real growth and tax collection

(% annual variation)

Source: AEAT 2009 2010 2011 2012 2013 Jan-Jun 2014 Annual growth homogeneous tax revenues

• 17,3

10,4 1,1 1,9 3,8 5,0

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REMS (*): Simulation assumptions Macro variables Annual and cumulative effect on GDP and other macro variables (deviations in percentage points of the value of each variables without reform)

Year t Year t+1 Year t+2 Year t+3 Year t+10 Various shocks applied on taxes are simulated on a permanent basis:

• PIT reform on labour income
• PIT reform on savings income
• CIT reform

GDP 0.31 0.52 0.69 0,84 1.14 Private Consumption 0.23 0.46 0.67 0.40 0.61 Gross Capital Formation 1.53 1.59 1.29 2.02 1.74 Net Exports (%/GDP)

• 0.17
• 0.16
• 0.10
• 0.05

0.06 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

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Goals and relevance Budget implications Impact

• To boost job creation. Reducing

taxation on income from labour and to strengthen competitiveness

• To revitalize the economic growth.

Modernizing the tax system to promote savings & investment

• Moving towards a more equitable tax
• system. Highest reduction for low and

middle incomes, social benefit for families with children and/or disabled members, and new measures to fight against tax fraud  Rising taxpayers disposable income EUR 9,000 million enabling an additional GDP growth of 0.55% (ex ante).  Given the induced effect on growth, expected revenue reduction EUR 6,900 million (ex post).  20 million taxpayers will have higher monthly disposable income

• Personal Income Tax: Revenue Costs

 Ex post impact:

• – EUR 2,535 million in 2015
• – EUR 1,984 million in 2016
• – EUR 634 million in 2017

 Ex ante impact:

• – EUR 6,391 million (2015-16)

 12.5% average tax reduction in two years  23.47% final average tax reduction for taxpayers below EUR 24,000 (72%)  31.06% final average tax reduction for taxpayers below EUR 18,000 (58%)  Reduction of the tax wedge  More than 1,6 million taxpayers no longer will have to pay PIT

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Goals and relevance PIT: Tax measures

Contribution to economic growth:

• lower taxes on labor income

 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  PIT marginal lowest rate: from 24.75% to 19% in 2016  Earned income tax allowance changes:

• EUR 2,000 general allowance for all taxpayers
• EUR 3,700 for incomes below EUR 11,250, being phased-out for incomes over

EUR 14,450 Contribution to economic growth:

• strong support for the self-

employed  Lower withholding taxes for the self-employed: 21% to 18% in 2016  15% withholding applies for self-employed income below EUR 15,000 Contribution to job creation Reduced employers SSC

• Exemption of EUR 500 monthly for new hirings during 24 months

Moving towards a more equitable tax system:

• Protecting disadvantaged

groups  Sharp increase in personal and family allowances: up to 32%  3 new non-wastable tax credits (up to EUR 1,200 per year) for

• Large families with dependent relatives
• Large families with disabled dependent relatives
• Single taxpayers with two children

 Taxpayers may claim for an advance monthly payment from the STA

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Goals and relevance PIT: Taxation of savings

Promotion of neutrality in the taxation of savings  Reduction of tax rates for saving income and higher progressivity for saving income

• ver EUR 50,000
• 20% to 24% for 2015
• 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 Fostering individual savings  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, 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) Promotion of tax neutrality  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  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

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Goals and relevance CIT: Tax measures

Contribution to economic growth: improving the competitiveness of Spanish companies  CIT rate reduction: from 30% to 28% in 2015, and 25% in 2016  Tax measures promoting deleveraging and balance sheet repair  Maintaining current limits for interest deduction: 30% of operating profit  A new capitalization reserve (as a reverse incentive of leveraging) is introduced. 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 Stimulate economic growth: strong support for SMEs  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 five years.  SMEs tax rate is only 20% If applied jointly with the capitalization reserve Stimulate economic growth: incentives for industrial, R&D investments and cultural activities  R+D+I taxpayers may claim for an advance refund above the current limit of EUR 3 million  A new tax credit on film productions, live entertainment and other theater activities is granted  Increased tax incentives for sponsorship, promoting fidelity in contributions

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Goals and relevance CIT: Tax measures

Broadening of the CIT base 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  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) Correcting debt bias in the CIT, and additional tax measures to prevent that taxation hinder the smooth operation of the Spanish domestic market  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 application of the capitalization reserve and the offsetting of tax losses  Capitalization reserve (10% reduction in the tax base of the equity increase in the preceding tax period)  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

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Budget implications CIT Impact

 Ex post impact:

• – EUR 87 million in 2015
• – EUR 2,341 million in 2016
• – EUR 59,5 million in 2017

 Ex ante impact:

• – EUR 3,078 million (2015-16)

 CIT rate unification helps to remove existing disincentives to SMEs growth. No longer distinction in tax rates for SMEs  Intended to reduce corporate debt. New incentives aimed at the financial deleveraging are introduced