The Minister of Hacienda and Public Function, María Jesús Montero, presented this Thursday the package of tax measures that allow progress towards a fairer tax system by providing for a greater contribution from large estates and large companies, while including surgical tax cuts in favor of low incomes, the self-employed and small companies.
The objective is to achieve greater social cohesion and a fairer distribution of the crisis under the premise that those who have more should contribute more. In this sense, Minister Montero highlighted that the measures of this new package are in line with those adopted since the arrival of Pedro Sánchez to the Government. «Our tax system is fairer and more progressive than at the beginning of the legislature,» said the Minister of Hacienda.
Montero pointed out that the progressive fiscal and social protection policy has also been reflected in the way in which the impact of the crisis resulting from the Russian invasion of Ukraine has been dealt with. In this regard, the minister recalled the package measures adopted, on the one hand, to protect the country’s social majority, such as the lowering of electricity and gas taxes, which will save families and the productive fabric more than 10 billion euros.
But also through aid aimed at the middle and working classes, such as the 20 cents per liter of fuel rebate or free public transport for Cercanías and Media Distancia, as well as measures for the most vulnerable groups, such as the 15% increase in the Minimum Vital Income or non-contributory pensions and direct assistance to the most affected sectors, such as transport or the gas-intensive industry.
The minister underlined that these relief measures for the country’s social majority have also been accompanied by initiatives to ensure those who have more contribute more through a tax on energy companies and banks.
New tax package
Minister Montero explained that the package of measures presented on 30 September is coherent with the government’s fiscal policy and is in line with a fiscal model designed for «the social majority of the country, which strengthens the foundations of society and generates opportunities, economic efficiency and prosperity»
These package of measures, which will be included in the General State Budget for 2023 or in laws that will allow them to be implemented next year, will act on large estates, large companies, through taxes as important as personal income tax and corporate income tax.
The tax rate will be 1.7% for assets between 3 and 5 million euros; 2.1% for assets between 5 and 10 million euros; and 3.5% for assets over 10 million euros.
This is a temporary state tax for the years 2023 and 2024, although a review clause will be included to assess at the end of its validity whether it is necessary to maintain or eliminate it. The potential number of taxpayers affected is 23,000 taxpayers, 0.1% of the total, and the potential revenue impact amounts to 1,500 million.
Personal income tax reduction
Measures are also included in the Personal Income Tax to advance in the objective of reducing the tax gap between capital income and earned income. To this end, the tax rate for capital income between 200,000 and 300,000 euros is increased by one point, to 27%. This measure will affect 17,814 taxpayers and will have an impact of more than 200 million euros.
Likewise, in order to help those taxpayers who need it most, the Government will extend the current reduction for earned income. Currently, this tax benefit applies to gross incomes up to 18,000 euros and the Government will extend and raise the reduction to reach taxpayers with a gross salary from work of 21,000 euros. In other words, not only will there be more beneficiaries, but the tax relief will be greater. The Minister of Hacienda emphasised that this measure does not imply a deflation of the rate, nor does it involve modifying tax brackets and rates.
The reduction for earned income will operate on gross salaries between 15,000 and 21,000 euros, a figure that is equivalent to the average salary in Spain. In other words, this measure means a reduction for 50% of workers, who will save 1,881 million euros.
One consequence of the extension of the reduction for earned income is that the minimum taxable income for a single taxpayer without children rises from 14,000 euros to 15,000 euros. This is relevant and guarantees, for example, that a worker who today earns the minimum wage, set at 14,000 euros, will not be taxed for personal income tax when the Government raises the minimum wage in 2023. It also means that a worker who today earns 14,500 euros and pays personal income tax will no longer pay the tax.
In the case of an employee with two children filing a common tax return, the minimum tax liability increases from 18,000 euros to 19,000 euros due to the increase in the reduction of earned income.
Savings for the self-employed
The tax package also includes measures aimed at easing the situation of the self-employed, a priority group for the government. In this way, the minister announced that the General State Budget Law for 2023 will include an additional reduction in personal income tax of five percentage points in the net return of modules, which will allow 577,688 self-employed workers to save 68 million euros.
In addition, the self-employed who are taxed by simplified direct estimation currently apply an automatic reduction of 5% of the net income with a maximum annual amount of 2,000 euros. This includes what are known as deductible expenses that are difficult to justify. In the next budget, the government will raise the reduction percentage to 7%. This will benefit 956,452 self-employed workers who will see their tax bill reduced by 116 million euros.
Besides, the Minister of Finance has also announced that the current limits of exclusion in the module system will be extended for another year. This decision means that more taxpayers will be able to continue paying tax through this system, which means a saving of 124 million euros.
More contribution from large companies and rebates for SMEs
Other measures announced have to do with corporate income tax. Minister Montero reminded the audience that since the beginning of the legislature, the government has approved measures to ensure that large companies and multinationals contribute more. This includes the minimum taxation of 15% for large companies and consolidated groups and limiting the exemption of dividends and capital gains to 95%.
Following this line and in accordance with a fair distribution of the crisis, the Minister of Hacienda and Public Function has announced that a regulatory change will be promoted in the Congress of Deputies that will limit the possibility of offsetting losses in consolidated groups to 50%. This is not a tax increase, but rather a deferral of the possibility of offsetting negative tax bases.
This is a temporary measure that will increase tax revenue by 2,439 million between 2023 and 2024 and will only affect 3,609 companies, which barely represent 0.2% of corporate tax filers.
On the other hand, in order to alleviate the situation of small companies, the minister also pointed out that the nominal rate of Corporate Tax will be reduced from 25% to 23% for SMEs with a turnover of up to one million euros. This measure will benefit 407,384 companies, which will save 292 million euros.
With this raft of tax measures, together with the actions carried out in recent years, the Minister of Hacienda has expressed her conviction that Spain will gain in economic efficiency, productivity and social cohesion. «There is no better defence of the middle and working classes than strengthening our universal public services», she said.
In addition, as promised, the government will also approve a reduction in VAT on feminine hygiene products (sanitary towels, tampons, panty liners), condoms and non-medicinal contraceptives from 10% to 4%
Source: Ministry of Finance and Public Function (30/09/2022)