taxation

taxation
   During the Franco regime taxes were low and evasion high. State revenue depended mainly on a wide range of indirect taxes, and taxation of personal income was not pursued with any real vigour: only one in twenty of the workforce paid income tax; many self-employed professionals did not bother to file returns and were left unmolested by the authorities. The calculation of corporation tax was not properly standardized and often depended on theoretical assessments by the inspectorate. Although some reforms were made in 1957 and 1964 which improved revenues and lessened somewhat the regressive nature of the taxation system, it was not until the advent of democracy in 1977 that steps were taken to implement a major overhaul of the entire fiscal system and to expand the revenue service so as to provide both fiscal vigilance and advice to taxpayers. A publicity campaign was launched to encourage returns and tax inspectors were given greater powers to catch offenders.
   By the early 1980s tax revenues had gone up from 20 to 25 percent of GDP and direct taxes had overtaken indirect taxes. Tax evasion was still rife, however, and the welfare plans of the new socialist government demanded substantial increases in revenues. Accordingly, between 1985 and 1990 the government made a two-pronged attack on the problem: it forced banks (and later insurance companies) to declare their customers" assets, and it offered tax dodgers a no-questionsasked route into legality via the investment of undeclared monies in low interest-bearing government secu-rities. By the early 1990s tax revenues had risen to 35 percent of GDP and the number of taxpayers had gone up from around the 6 million mark in 1980 to 12.5 million. Direct taxes had continued to outstrip indirect taxes despite the introduction of VAT which, being more effective than the variety of indirect taxes that it replaced, helped to increase revenue. Part of the increase in direct tax revenues is due to the effect of progressive taxation: incomes in Spain have gone up very substantially, which results in payment at higher rates of tax. Nevertheless compared to other EU countries the fiscal burden (tax revenues as a proportion of GDP) in Spain is at the lower end of the scale, close to that of the UK and considerably below those of countries near the EU average such as Italy, France or Austria.
   The distribution of the tax burden, however, is open to serious criticism in that employees, whose earnings are easily identified and have income tax deducted at source, are on average paying tax at higher rates than employers and selfemployed, which clearly points to massive tax evasion by the better off whose earnings cannot be directly verified because they are not on a payroll. Since this applies to between a fifth and a sixth of the workforce, the problem is a severe and longstanding one which successive governments have failed to tackle with sufficient vigour and which deepens and perpetuates income inequalities in Spain. According to the Spanish Institute for Fiscal Studies about half the income earned in Spain by the self-employed is undeclared and therefore untaxed.
   Further reading
   - Chislett, W. (1998) Spain: The Central Hispano Handbook, Madrid: Central Hispano (pp. 23–5 give a concise summary of the tax system, with useful graphs which give a succinct comparison with the EU).
   - Hooper, J. (1995) The New Spaniards, Harmondsworth: Penguin (chapter 17 includes several excellent pages on the deficiencies of Spain's taxation system).
   C. A. LONGHURST

Encyclopedia of contemporary Spanish culture. 2013.

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