Government announces tax hikes in bid to raise an extra €4.6 billion

 

  • Popular Party administration will increase duty on tobacco and sugary drinks
  • 1,000€ cash transaction limit as part of measures to combat ‘Black Money’

The Spanish Cabinet has approved the budget plan that it will send to the European Commission, with the aim of guaranteeing that the government sticks to its promise to bring down its deficit next year. Spain has committed to making an adjustment of around €16 billion in 2017, to reduce its public deficit to 3.1% of GDP.

To do so the budget includes a number of tax rises, including those related to company tax as well as special levies on tobacco, high-grade alcohol (beer and wine are not affected), and a new duty on sugary drinks. With these measures, the government is hoping to raise around €4.6 billion.

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Spanish Budget includes tax hikes and 1,000€ cash limit to combat black money

With these changes we will see revenues from the tax of around €25 to €26 billion

The minority Popular Party (PP) government has negotiated these measures with the major parties in Congress, but was able to get them through thanks to a deal with the main opposition Socialist Party (PSOE). The PP won most votes at two general elections held in the last year, but failed to secure a majority. As such it will now have to seek support in Congress from other parties in order to pass legislation and get things done.

The majority of the increased revenues will stem from company tax, through which an additional €4.3 billion is expected to be collected. The government will do this by limiting the fiscal benefits of the regulations, bringing it into harmony with new criteria set out by Brussels.

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Spanish Budget includes tax hikes and 1,000€ cash limit to combat black money

The new levies on tobacco and alcohol are expected to raise €350 million

“With these changes we will see revenues from the tax of around €25 to €26 billion,” said Finance Minister Cristóbal Montoro on Friday. As he himself admitted, this figure is far from the pre-crisis numbers of 2008, when the duty brought in around €44 billion.

The new levies on tobacco and alcohol are expected to raise €350 million, while duty will also rise on cigarettes (2.5%) and rolling tobacco (6%). The tax on sugary drinks, which are being targeted more and more by health campaigners, will also raise around €200 million.

These types of taxes target what experts call “negative externalities,” or the costs suffered by a third party via consumption of taxed items, in this case because of detrimental effects on health.

Montoro also announced that measures to combat tax fraud are expected to raise a further €2 billion, while a limit on the amount that can be paid in cash for a transaction to €1,000 is also expected to have an effect on tax evasion and reduce the widespread use of so-called “black money.”