Council of Ministers

Government announces average Personal Income Tax reduction of 12.5%
Moncloa Palace, Madrid, Friday 20 June 2014
The Council of Ministers analysed a report on the Draft Tax Reform Bill, with the aim of designing clearer and
fairer taxes. The reform will result in a GDP increase of 0.55% in the period 2015-2016.
On Monday, the text will be published on the webpage of the Ministry of the Treasury and Public
Administration Services, which will be submitted to the regional governments and to the different social
stakeholders at which time a period of public consultation will be initiated. Following this process, the
government will approve its submission to Parliament with a view to it entering into force in January 2015.
The Vice-President of the Government, Soraya Sáenz de Santamaría, highlighted that this is a structural
reform which seeks to reduce taxes for all on a general basis: for workers, companies and families. "The
reforms adopted over the last two and a half years have enabled us to tackle the path to recovery. Now is the
time for consolidation".
Along the same lines, the Minister for the Treasury and the Public Administration Services, Cristóbal Montoro,
pointed out that "the time has come to reduce taxation for everyone and the Spanish people will now be
compensated for the efforts they have had to make".
The two ministers underlined that the reform not only seeks to compensate the sacrifices made by the people,
but also to strengthen economic growth, stimulate savings and investment through a modern tax system that
fosters job creation. "We will reduce tax on employment significantly and we will reduce the so-called 'fiscal
gap', which is too wide in Spain", said Cristóbal Montoro.
The Minister for the Treasury pointed out that the reform seeks to foster entrepreneurialism and enhance the
Spanish economy's ability to compete with the rest of the world. "We are committed to enhancing - through
higher fiscal savings - the facilities for companies in Spain to become larger, more effective and more
competitive".
Both Soraya Sáenz de Santamaría and Cristóbal Montoro highlighted that the underlying principle of this
reform is the creation of a fairer tax system, with a particular focus on families and the disabled.
Average reduction of 12.5% in IRPF
The average Personal Income Tax reduction will be 12.5% for all taxpayers. 72% of taxpayers, with income
lower than 24,000 euros, will have an average reduction of 23.5%.
The Vice-President of the Government announced that "in 2015, 20 million taxpayers will have higher
disposable monthly income because this reduction will be seen from the very first month of withholdings in
January 2015".
The Minister for the Treasury and the Public Administration Services added that "for those taxpayers with
income of less than 18,000 euros per annum, the total reduction on their current situation may be as high as
31%".
Cristóbal Montoro confirmed that next year the number of IRPF brackets will be reduced from the current 7 to
5. The tax rate of the lowest bracket will stand at 20% next year, dropping to 19% in 2016. The tax rate of the
highest bracket will stand at 47% in 2015, dropping to 45% in 2016. He also pointed out that those citizens
that have total income from employment of less than 12,000 euros will not pay IRPF.
More social benefits
The minister announced that the so-called 'negative taxes' will be extended, which include aid directly paid out
from the Treasury earmarked for certain groups, such as large families and families with dependent children
and disabled members. A new feature indicated by the minister is that while aid for working mothers is
maintained, new social protection vehicles are to be created.
In each case, 1,200 euros may be received per annum in advance at a rate of 100 euros per month. These
'negative taxes' are to be accumulative.
Corporate Income Tax
Corporate Income TaxCristóbal Montoro reported that the general tax rate for Corporate Income Tax will be
reduced from its current 30% to 28% in 2015 and to 25% in 2016.
A business capitalisation reserve will be created, meaning that companies can earmark a tax-free provision to
own resources of up to 10% of the profit made in the tax year. That will be used to promote business self-
financing and reduce dependency on outside resources.
In the case of SMEs, a levelling-down reserve is created whereby a reduction of 10% in the tax base can be
enjoyed, up to a limit of 1 million euros.
The Minister for the Treasury and the Public Administration Services also commented that the reduced tax
rate for new entrepreneurs will be maintained at 15%. In order to combat fraud, a list of bad debtors will be
published, a commitment made by this government at the start of the legislature.
No rise in VAT
The Vice-President of the Government announced that the government will not raise VAT, except on certain
healthcare products as required under European case law.
The minister explained that the government is not going to raise VAT because it already raised it at "an
extremely critical moment for Spain" - in July 2012, and this tax hike was sufficiently extensive and has
allowed us, under the new economic scenario, to collect more. "The VAT collection figures are actually
positive and hence we will not be pushing for any further VAT hikes because we see them as wholly
unnecessary and even counter-productive at this time".

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