The Ministry of Finance is planning to heed the EU?s latest report on taxation in Spain. Even though on Friday finance minister Cristóbal Montoro stated that the government would not raise the personal income tax (known as IRPF in Spanish), corporate taxes or the VAT, he is already preparing new tax hikes for Spain's biggest corporations.
Tax rates themselves will not be increased, but available deductions will be cut. The result will increase the tax burden on corporations. The move makes sense and has been pushed by tax officials for a while in hopes of cleaning up various deductions that have piled up over the years in favor of taxing corporate earnings. Many tax officials clearly favor the big companies that, to the detriment of small- and medium-sized businesses, rely on specialized accounting departments to find the most deductions possible. Still, the Ministry of Finance is forgetting that a plan to simplify taxes ought to be complemented with lower rates. But it plans to raise taxes across the board. We will have to wait and see what effect higher rates will have on the government's tax revenues. An overall increase or decrease will depend on how much the national Tax Agency needs to collect. Taxes will increase not only for corporations, but also environmental taxes and other special taxes.
Also, the government should decide whether it will postpone raising the country's personal income tax. Increasing this tax alongside higher corporate taxation would further increase the tax burden on Spain's economy. The solution to recharge the economy is not to raise taxes, but to lower then. Once again, Montoro has gone against his word.
