Fedea experts propose a "coronatributo" in personal income tax to finance public expenses for the pandemic




The Covid-19 Joint Working Group coordinated by the Foundation for Applied Economics Studies (Fedea) proposes the establishment of a temporary surcharge on personal income tax to finance public expenditures related to the coronavirus pandemic. In a report published this Monday, the group of experts identifies the tax measures that, in their opinion, should be implemented in Spain and that divide into storms to defray the costs of the epidemic and permanent to resolve the gap between income and expenses that the country has dragged on for years.

Temporary measures or "coronatributos" go through a surcharge in personal income tax for a limited time depending on the evolution of public accounts, with an exempt tranche that takes into account the situation of the groups most affected by the crisis and that could be completed with a temporary VAT increase.

Instead, experts reject the launch of a wealth tax because it loads the cost of the crisis on a specific group, the same reason why criticize the possibility of an extraordinary surcharge on corporation tax, which could also affect investment decisions and the workers' own wages.

In the temporary or transitory measures proposed in the document, the authors propose the use of "coronatributos" in order to help finance in an “equitable” way the extraordinary expenses generated by the pandemic, including the "necessary measures" of social protection and reactivation.

The second group would include structural and permanent measures, aimed at achieving a stable and lasting consolidation of public finances and laying the foundations for "solid and inclusive" growth. Furthermore, Fedea indicates that both types of measures must be considered in combination with initiatives to "rationalize public spending".

Regarding the first block, experts consider that the "fairest and simplest crown attribute" would be an extraordinary surcharge on personal income tax, which would be in force for a limited period until reaching a certain balance in public finances.

This surcharge could be articulated in a similar way to the complementary rates applied between 2012 and 2014, although Fedea warns that its introduction date should be studied "carefully" to avoid slowing down the start of the economic recovery.

As for structural measures and more in the long term, his goal would be to balance in the "most efficient way possible" the structural gap between public income and expenditure, which the authors put at 35,000 million euros with data from 2019.

Eliminate tax benefits

To do this, they propose a "comprehensive reform of the tax system", which is designed "as soon as possible" and which should be the result of "a broad agreement between political forces and social partners". "If necessary, its entry into force could be gradual, depending on the requirements that may arise from the performance of macroeconomic variables," the document stresses.

Specifically, Fedea proposes to evaluate "exhaustively" and with criteria of "efficiency and effectiveness" all tax benefits (exemptions, reductions, deductions, discounts, reduced rates, etc.) that reduce the effective taxation of the main taxes, such as Personal Income Tax, VAT and Corporation Tax. "The elimination of some of these benefits could generate a significant volume of income and contribute to reducing the inefficiencies associated with those taxes," the document highlights.

Likewise, Fedea ensures that it can also be a "good time" to eliminate the objective estimation regime (known as module taxation) of income from economic activities in personal income tax and, in parallel, the simplified VAT regime, so Many freelancers are taxed.

"The reform of the Inheritance and Gift Tax is equally unavoidable," emphasizes Fedea, who also advocates approximating the types of tax on alcoholic beverages, tobacco and fossil fuels to those established in the main countries of the European Union.

Along the same lines, it calls for taking advantage of the path that environmental taxes still have, increasing public revenues based on the profit principle (rates, public prices, copays, etc.) and continuing to strengthen the fight against the shadow economy, evasion and tax avoidance


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