Neither inflation nor a supply crunch is a valid excuse for Brussels not to implement one of the reforms included in the Recovery Plan. And, among them, tax reform. The government has agreed with the European Commission to reform the tax system in 2023. To do this, the Ministry of Finance commissioned a white paper from almost twenty experts. However, on the same day of its presentation, the head of the Treasury, Maria Jesus Montero, pointed out that in the face of international uncertainty, now is not the time to pursue reforms. The invasion of Ukraine hit energy markets even harder, causing prices to soar, pushing the Consumer Price Index (CPI) to levels not seen in three decades. However, this is not sufficient reason to delay the reform before the European Commission, as this newspaper has learned.
In fact, in the recommendations that Brussels gave to Spain regarding the European semester, the Commission proceeds from the fact that “there is tax reform is under implementation and ready to go into effect in the first quarter of 2023.” But the Treasury calendar is no longer the same as the Recovery Plan. fully recovered from the coronavirus crisis, and this recovery is expected by the end of 2023, when tax reform should already begin.
The Treasury rules out a comprehensive tax reform that will take effect early next year, but commits to “take into account the recommendations contained in the report of the Committee of Experts on Tax Reform and compile a review.” on taxation of registration and circulation of vehicles and on a new regulation on taxes on fluorinated gases and hydrocarbons”. This is stated in the Stability Program, which the government sent to Brussels. However, the proposals of experts advocating a general increase in taxation of hydrocarbons are in conflict with the current policy of the executive branch, which is forced expand fiscal measures to lower electricity bills and include a fuel discount based on historical historical prices.
Considering rising fuel prices, the idea compare diesel and petrol prices loses power in the executive branch. In addition, the Government has included other taxes in the Plan, such as a tax on airline tickets. Moncloa also promised in the Recovery Plan to take personal tax measures in the “short term” to “increase collection” and “make them more progressive, redistributive and fair.” Without much detail, “short-term tax measures to be taken with respect to indirect taxes” and corporate income tax were included. Brussels will check if these promises are kept as Spain requests payments from the Recovery and Resilience Fund (MRR).
The Commission will demand violations of the stages and reforms. However, he will take into account that some of the investments in the Recovery Plan may be delayed due to problems in the supply chains and difficulties in obtaining certain raw materials or necessary components. Brussels will agree that it will take longer than expected to build houses or install photovoltaic panels due to a supply crisis, to give a few examples, but states will have to justify violations of initially admitted conditions very well.
VAT and environmental taxation
In tax matters, the Bank of Spain has recently focused on value added tax (VAT). The Banking Supervisory Authority has determined that collections can be increased in this way and is advocating the phasing out of reduced and super-reduced rates. In addition, in line with what the government defends, “after overcoming the pandemic and the adverse economic consequences of the conflict in Ukraine,” the Bank of Spain advocates “a comprehensive overhaul of the Spanish tax system.” This revision should include an increase in taxes on consumption, i.e. value added tax (VAT) and special taxes on hydrocarbons, alcohol, tobacco and electricity.
On the other hand, the Bank pointed out that “our country’s ambitious environmental targets point to the need to introduce new tax measures in energy, hydrocarbons and transport”. In fact, in the recommendations of the European Commission, Brussels determines that Spain is one of the countries that collects the least number of environmental concepts among the rest of the community economies. On the other hand, its public spending on environmental protection is greater. In this sense, the Commission also determines the limit to the improvement of environmental taxes, towards which the fiscal policy of Spain should move.
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