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Tax Hikes in Spain's 2010 Budget

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Author/s: Bruno Dominguez
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The Spanish Government has just announced that next year's budget will include almost EUR 11 billion in proposed tax increases. Among the Government's proposals are the abolition of an across-the-board EUR 400 tax rebate at Personal Income Tax, an increase in Capital Gains Tax from 18% up to 21% and a rise in the standard VAT rate from 16% to 18% and in the reduced VAT rate from 7% to 8%.

From 1 July 2010, the Spanish Government aims to increase the current standard rate of VAT from 16% to 18%, and to increase the reduced VAT rate which currently applies to such items as essential services and food production from 7% to 8%. A 16%, the Spanish standard VAT rate was one of the EU's lowest after Luxembourg and Cyprus. These VAT hikes are likely to increase tax receipts by EUR 5.2 billion. 

Much of the tax increase will come from scrapping, as of 1 January 2010, the universal Personal Income Tax 400-euro tax rebate introduced in 2008 for both employed workers and self-employed individuals.  

Additionally, also from 1 January next year, Personal Income Tax will be increased as well for most taxpayers as the tax levied on interest, dividends or capital gains will be raised from 18% to 19% and up to 21% for capital gains or savings income over EUR 6,000.   

The Government's 2010 budget bill must now be approved by the Spanish Parliament, but the Government does not have a majority and will have to secure the support of smaller parties to get the bill approved. Changes and eventually further tax hikes may be therefore expected before the budget is definitely passed. 

Should the proposed budget be passed, Spain's overall tax burden (or revenue as a share of GDP) would rise 1 percentage point, and remain below the EU average, which Eurostat estimates was 39.8 percent in 2007.
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