The Spanish Government has announced bold tax reductions in a reform package designed to ease the burden on its workers and to win votes for the Rajoy government in election year
"It is time to lower taxes for everyone," according to welcome comments from the Spanish finance minister, Cristóbal Montoro, who announced a tax reform that will lower income tax rates in time for the next election.
Spain's tax reforms will produce an average reduction in income tax of 12.5% over in two years, said the already popular María Soraya Sáenz de Santamaría, Vice-President of the Government who added that for around 62% of Spain’s taxpayers, those earning less than €24,000 per year will see a drop in income tax to 23.5% by 2016.
The Government pledged also to not raise VAT, except on some categories of products insisted on by Brussels.
The new tax figure for large families and dependents, and tax rates on savings income go back to 2011 levels, except on incomes above €50,000.
Spain's income tax brackets will be reduced from seven to five and the rates applied to each level of income will reduce. The lowest will have a rate of 20%, a drop of 4% against the current rate and will fall further to 19% from 2016. The higher rate will drop from 52% to 45% in 2016.
Taxpayers will get the full benefit of these tax cuts as from January 2015, in an election year as a general election must be held on or before 20 December 2015.
In Portugal, the Government is rather less decisive and has managed only to appoint a committee to look at perhaps reforming income tax rates, having marginally eased the tax burden on businesses.
The committee has looked at simplifying income tax but is no longer looking at reducing the rates, not that it was ever going to be taken seriously. On the contrary, yet higher income tax rates in Portugal are a distinct possibility being considered by the government which has left itself just 10 weeks from mid-October to make up the €600 million shortfall in its income due to adverse decisions of the Constitutional Court on three key state spending cuts in the 2014 State Budget.
Portugal's current tax rates are -
|
Taxable income |
Tax on lower amount € |
Rate on excess % |
|
|
Exceeding € |
Not Exceeding € |
||
|
0 |
7,000 |
0 |
14.50 |
|
7,000 |
20,000 |
1,015 |
28.50 |
|
20,000 |
40,000 |
4,720 |
37 |
|
40,000 |
80,000 |
12,120 |
45 |
|
80,000 |
- |
30,120 |
48 |
For 2014, taxable income exceeding €80,000 but not exceeding €250,000 is subject to an additional solidarity tax of 2.5%, and taxable income exceeding €250,000 is subject to an additional solidarity tax of 5%.
In addition, for 2014, taxable income exceeding €6,790 is subject to an extraordinary surcharge of 3.5%. This rate also applies to nonhabitual residents that benefit from the 20% flat tax rate.
