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Spain Floats Tax Reform In Coronavirus Recovery Plan

By Matt Thompson · May 7, 2021, 6:24 PM EDT

Spain set forth plans to reform its economy and tax system — a requirement for drawing money from the European Union's coronavirus recovery fund — in a document deposited with the bloc Friday.

The document described the country's plan to modernize and reinforce its tax system as one "axis" of four that make up Spain's overall economic reform plan, and acknowledged several problems with the current taxation regime, such as a high reliance on labor.

"There are numerous reports on the shortcomings of the Spanish tax system," the government said in the document. "Spain has an income-to-gross domestic product ratio lower than the average European country, a high burden of taxation on labor and insufficient development of environmental taxation, and low collection of value-added tax."

To deliver proposals that address the shortcomings in its tax system, the Spanish government has said it will convene a group of experts on tax reform. While this work is going on, the government is proceeding with immediate reforms of the tax system "aimed at adapting the tax system to the reality of the 21st century, increasing its progressivity and redistributive character," the document said.

The Spanish government will roll out a number of initiatives to prevent and combat tax fraud, improve the effectiveness of public spending, address the long-term sustainability of the public pension program and modernize the tax system, such as through electronic filing.

"A reform of the tax system is going to be undertaken to guarantee a flow of resources that allows responding to spending and investment needs, contributing to the reduction of the structural deficit and maintenance of the welfare state, bringing the tax burden of Spain to the average of the countries of the euro zone," the document said..

In October, the Spanish Parliament approved a financial transaction tax of 0.2% on the purchase of shares traded on the country's stock market in companies with a market capitalization higher than €1 billion ($1.2 billion). At the same time, the Spanish Senate approved a 3% levy on the turnover of large digital companies.

Both taxes are referred to in the recovery and resilience document, along with ecological taxes, as revenue measures the Spanish government considers important for the future.

The Spanish Finance Ministry could not immediately be reached for comment.

--Editing by Neil Cohen.

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