The Institute of Economic Studies (IEE) of the European Union (EU). According to the IEE, adding what they pay in Social Security contributions and Corporate Tax, companies’ contributions to the total collection amount to 32.4%, compared to the EU measure of 25.8%. .
Within that 32.4%, 25.2% corresponds to what companies pay in Social Security contributions, compared to 17.7% in the EU, and 7.2% to Corporate Tax, in contrast to the 8.1% of the European average, the IEE details in its report. The study, titled ‘Fiscal competitiveness 2023. The tightening of corporate taxation in Spain slows down economic growth’, points out that, in terms of GDP, the collection of Corporate Tax in Spain accounted for 2.7% of GDP , and business contributions to Social Security, 9.5%, which, together, adds up to 12.2% of GDP.
In contrast, the European Union average is 3.3% in Corporate Tax and 7.1% in business contributions, so the business tax pressure, in terms of GDP, is in Spain 1, 8 points above the European averages. The report places the tax pressure in Spain in 2023 at around 39%, a figure that, according to the IEE, “consolidates the strong increase in tax pressure that has been occurring in recent years” and with which it has been reduced “Considerably” the differential with the European media. This reached 40.2% in 2022, while in Spain, according to Eurostat data, it was 37.7%.
The IEE points out that this increase in tax pressure is due to the introduction of new taxes or the reform of existing ones, which affects business taxation and savings and investment. “This difference between the means of tax pressure in the EU and Spain is not due to the tax pressure on companies and entrepreneurs; in fact, the corporate tax pressure is, according to Eurostat, at a higher level than the EU means “, alleges the IEE.
Raising taxes, “one of the worst decisions”
On the other hand, the organization also denounces in its report that Spain has a “more inefficient and distorting” tax system, which penalizes savings and investment, and in which taxes on savings and companies are raised for “the alleged “. difference in fiscal pressure with the EU average”, which is not such, or arguing that the public deficit must be reduced.
In this sense, the organization warns that “one of the worst decisions” that the Government could make, at a time like the current one, is to raise taxes in general, and on the business sector in particular, since “it would depress supply “. productive and consumption” and the agents’ expectations would deteriorate, “causing a degradation of confidence, the fundamental pillar on which economic growth and job creation are supported.”
The IEE also warns that correcting the imbalances by raising additional taxes will worsen fiscal competitiveness “even more”, and is committed, to maintain budget balance, to undertake the major pending structural reform: that of optimizing the efficiency of public spending. . and do not make additional tax increases that compromise growth.
“A corporate taxation higher than that of the countries around us would cause a relocation of investments, flight of taxpayers and competitive disadvantages for our residents, mainly those who operate in international markets, but also the local ones, who would have to face the competition from non-resident operators with a lower tax burden,” he maintains.
In this sense, the IEE indicates that any increase in tax collection should be based on increasing tax bases and the fight against tax fraud and not on increasing tax pressure.
Tax effort of Spanish companies
Regarding the fiscal effort, establishing the EU-28 as level 100, the IEE points out that in Spain a fiscal effort is 17.8% higher than that of the EU, “which in itself is quite high in the context internationally, well above that of other OECD countries. “Among the large advanced economies, none presents a fiscal effort greater than that of our country,” denounces the organization.
On the other hand, according to the Tax Foundation’s Tax Competitiveness Index (ICF), Spain was among the OECD economies with the worst tax competitiveness in 2023, “with a strong decline in this indicator in the current legislature,” he points out. the IEE. In fact, the organization points out, the regulatory tax pressure (tax burden that the design of the tax system introduces into the economies) is 17% higher than the European Union average.
The IEE highlights that last year, in terms of fiscal competitiveness, Spain ranked 31st out of a total of 38 countries analyzed, three positions higher than the previous year, but still eight positions lower than the 2 3 position that ranked in 2019 and one behind the 30th in 2021.
“A notable loss of tax competitiveness”
“This shows a notable loss of fiscal competitiveness in our country from the position before the pandemic, reflecting the effect of tax increases on companies and entrepreneurs, a trend that the Government seems determined to maintain in the current legislature, with continued tax increases. taxes and the maintenance of the new tax figures that were, in principle, designed on a temporary basis,” according to the IEE.
The institute states that one of the two tax figures with the highest regulatory tax pressure in Spain is the Corporate Tax, which is among the six most burdensome in the OECD, with a regulatory tax pressure 28.9% higher than the average of the EU and 20.9% above the OECD average.
The other tax figure with the greatest regulatory fiscal pressure in Spain is the property tax, “the second worst in the entire OECD”, only behind Italy. In this case, the IEE states that Spain’s position is 39.6% worse than that of the EU and 37.3% less competitive than the OECD average.
Regarding the Personal Income Tax (IRPF), the Institute points out that it is 6.1% above the EU averages and is 2.2% higher than the OECD averages. Furthermore, Spain is among the countries where personal income tax is most progressive; specifically, it ranks 10th out of a total of 28 analyzed.
The joint effect with Social Security contributions, “particularly high” in Spain, raised the tax wedge in Spain to 59.5% in 2022, so the net salary that the employee finally receives constitutes 60% of the cost labor In relation to the tax wedge, Spain is clearly above the OECD average, which is 47%.
