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Government’s new tax hikes will cost the contributor an average 500 euros a year
03 November 2009 @ 18:01

The slump in consumer spending and the destruction of jobs are taking their toll on the taxman. In the province of Malaga the tax workers union, Gestha, calculates a reduction of 30 per cent in taxes collected over the last year. In order to make up for the deficit and square the accounts for 2010, the Government has asked taxpayers to make an “effort of solidarity” so that it can attend to its growing social costs. This special “effort” comes in the form of a tax increase which, according to Gestha, will extract an extra 500 euros a year from the pocket of each taxpayer in the province. That is more than half of the average monthly salary. And this “effort” will provide the State with an extra 115 million euros.

Those with average incomes will suffer the most from the tax changes which will affect everything from the purchase of a new car (which, according to the industry will cost an extra 420 euros on average) to signing a mortgage on a new house (which will cost an average of 2,000 euros more, according to the Association of Property Developers).
But the effects of the tax increases will not just be felt when it comes to large purchases. The increases in IVA (Spain’s Value Added Tax) will make almost everything just that little bit more expensive, from new clothes and domestic appliances to razors or a meal in a restaurant.

All this will start from July 1st 2010 when the value added tax increases come into force. The normal IVA rate is to go up by two per cent from 16 to 18, while the reduced rate, applied to foods, property, restaurants and transport will go up from seven to eight per cent.

Only the “super-reduced” rate, applied to basic commodities and essential foods, will remain as it was, at four per cent. Nevertheless consumers organisations point out that the average shopping trolley is full of products that are not considered as basic necessities but are just as necessary. These products “from tins of the typical ‘fried’ tomato, to sanitary towels or nappies” will see their prices increase with the new IVA rate, they explain.
Businesses

All of these changes will take their toll on local businesses. Gestha calculates that they will have to pay some 51 million euros extra every year, an expense that they will logically pass on to the consumer. “Every business in the province will have to pay an additional 446 euros in IVA”, explain the experts.

The union maintains that those who earn less than 30,000 euros a year (88.76% of taxpayers) are those who will suffer most from the tax increases, “which will damage consumer spending even further, a situation that is precisely one of the main reasons behind the slump in funds raised from taxes in 2009”.

Gestha believes that the extra funds ought to be raised through a special tax on tobacco, alcohol or fuel, “which would also benefit public health and the environment”.

Nevertheless the value added tax is not the only increase planned for next July. Taxpayers will suffer far more from the elimination of the 400 euro tax rebate, explain the experts. This will affect 96 per cent of the taxpayers in this province, in other words, those who earn between 9,000 and 60,000 euros a year.

Although the Government is still deciding whether to maintain the rebate for those whose income is less than 11,000 euros a year, Gestha predicts that the move will save the taxman some 58 million euros in the province of Malaga.
Eduardo Cortés, fiscal adviser and secretary of the Association of Fiscal Advisers Tax Workers in Andalucía, agrees that the withdrawal of the 400 euro rebate will be the measure that the average citizen will notice most “as it will hit those on middle incomes”, he explains.

Meanwhile José María Muñoz, of the Spanish Association of Fiscal Advisers, adds that the reform will affect everyone “regardless of their income, although the weaker household economies will be those that feel it more”.

Small businesses
On the other hand, however, the Government reform includes a tax change in favour of small and medium-sized businesses and the self-employed. This comes in the form of a five point reduction (from 25% to 20%) in company tax (Impuesto de Sociedades) for firms that maintain or increase their workforce. In order to be eligible for this reduction companies must have fewer than 25 employees and an income of no more than five million euros. However the experts are doubtful as to whether this will benefit the business sector as a whole in the province of Malaga as making profits and maintaining the workforce are becoming increasingly difficult to achieve in the current climate.

Source: Sur In English



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