'Spain falls in tax competitiveness ranking.'

'The Regional Tax Competitiveness Index (RTCI) complements the ITCI by comparing 19 Spanish regions on more than 60 variables in five main areas of taxation: personal income tax, wealth tax, inheritance tax, estate transfer and impression tax, and other regional taxes, combining the results to produce a final ranking.

Spain in 2022. Assessment and ranking of the International Tax Competitiveness Index by category

General

56,9

Corporate income tax

51,8

Taxes of individuals

63,3

Taxes on''Spain is one of eight Organization for Economic Cooperation and Development (OECD) countries that has introduced a digital services tax (DST). Third, it has a relatively high corporate tax rate of 25 percent, which is higher than the OECD average rate (23.6 percent). In addition, some regions have rates higher than the overall corporate tax rate in Spain, such as Navarra at 28 percent.

Individual tax in Spain is also weak, dropping from 16th place in 2021 to 25th this year in the ITCI due to an increase in the high income tax rate from 43.5 percent to 45.5 percent. That's the high income tax rate applicable in 2021 in Madrid, the country's most competitive region according to RTCI. When the Spanish central government raised the rate''s high income tax by 2 percentage points, Madrid approved an overall tax cut of 0.5 points for all workers, setting the overall (central and regional) current maximum income tax rate at 45 percent. Although tax competition has helped contain tax increases in some regions, 13 of them have a higher maximum income tax rate than Germany (47 percent). Some regions in Spain, such as the Valencian Community, have the fourth highest high income tax rate in Europe (54 percent), after Denmark (55.9 percent), France (55.4 percent), and Austria (55 percent). Valencia's top tax rate applies to incomes over 475,000 euros ($470,250), while in Austria it applies only to incomes''on top of 1 million euros ($0.99 million U.S. dollars). Denmark has a high tax rate because it does not rely on social security contributions as part of its tax system, as Spain and other countries do.

Spain ranks 19th in consumption tax. However, less than 50 percent of consumption is covered by value-added tax (VAT) because of exemptions that complicate the system as a whole and distort consumer choice. A broader VAT framework could create fiscal space to reduce the overall VAT rate, which stands at 21 percent.

Spain ranks last in property taxes, with particular distorting property taxes. Spain levies a tax on immovable property,''on inheritance, inheritance and gift tax in Europe.

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Like the net wealth tax, inheritance and gift taxes in Spain are levied and administered by regional governments. Regional inheritance tax rates in Spain can reach levels as high as 87.6 percent (in Asturias), depending not only on the amount inherited, but also on the level of wealth of the heir prior to inheritance and the kinship of the heir. Not surprisingly, Spain's regions have the highest inheritance tax rates in Europe; 13 Spanish regions charge a higher maximum tax rate than the 80 percent rate applied in Belgium.

Tax competition has proved effective; some Spanish regions are already copying tax''reforms of Madrid and other leading regions. For example, Castile and León improved its overall position by 7 places (from 13th to 6th position in the RTCI) following the inheritance tax reform. In 2022, Andalucía became the first region to reduce its top inheritance tax rate from 81.6 percent to 49.6 percent, slightly below the top tax rate in Germany and Switzerland of 50 percent.

Although inheritance and gift taxes generate little revenue, a recent study found that legacies can reduce wealth inequality because transfers make a proportionately larger share (relative to their pre-inheritance wealth) to households with lower wealth. And this is particularly true in Spain, where inherited wealth is 95.6 percent''net wealth. Therefore, given their limited ability to collect revenue and the negative impact on entrepreneurship, savings and work, policymakers should consider abolishing inheritance and gift taxes. Currently, 12 OECD countries have no inheritance, inheritance or gift taxes: Australia, Austria, Canada, Colombia, Costa Rica, Estonia, Israel, Latvia, New Zealand, Norway, Slovak Republic and Sweden.

New tax reforms threaten to further erode Spain's tax competitiveness. The central government plans to introduce a new wealth or solidarity tax and raise the tax rate on income from the sale of property and dividends by 2 percentage points to 28 percent.'''The tax loss offset limitation for organizations belonging to the combined tax group would be 50 percent of that amount (currently 70 percent) over the next two years. In return, the small business income tax will be reduced to 23 percent. While the central government has no plans to index the tax bands to offset inflation, it has proposed a small reduction in the effective tax rate for households earning less than €21,000 a year. However, while the withholding rate will be reduced and the amount of tax paid during 2023 by low-income households will be reduced, it is not clear that final household income tax bills will be reduced. If these measures are enacted, they''growth, Spain should consider full cost accounting for capital investment and change its tax structure in favor of less harmful consumption taxes by broadening the basis of the value-added tax. Spain should implement tax reforms that can stimulate economic activity by supporting private investment and employment, attracting highly skilled workers, and increasing its domestic and international tax competitiveness.