TAXING STORIES

June is here and with it comes the star attraction in the shape of the annual tax return, our longed-for IRPF forms, which provide the inspiration for this article. The fact of the matter is that in Spain we believe we get much less back from the state, in any of its different guises –central, regional or local government–, than what we pay in through our taxes. At least that is the opinion of 62 % of people surveyed by Spanish polling body the Centre for Sociological Research (CIS).

Taxes affect us all. To different degrees, but they do. They influence our behaviour as consumers and workers, and also affect all those involved in economic activity.

Relax. I am not going to make you sick on your flight with a detailed explanation of the efficiency costs of taxes, an aspect addressed by the father of modern economics Adam Smith in his classic work The Wealth of Nations, which highlighted the importance of correctly managing tax collection to ensure taxes are not too expensive to raise and at the same time discourage economic activity as little as possible.

Taxes receive very different names in Spanish -tributo, arbitrio, tasa, canon, gravamen, arancel and other very specific denominations. Some of them are used to enable governments to draw up and pass relevant legislation governing them as quickly and flexibly as possible.

In any event, taxes are by far from new. Texts dating back to the 14th century B.C, over 3000 years ago, describe what many of us might feel today: «You can love a prince and you can love a king but can but fear a tax collector».

Taxes do not change according to political ideology or religion. In the New Testament, Matthew is referred to as a tax collector while the most influential philosopher in Chinese culture, Confucius, was a «tax inspector».

In Egypt, one way of paying taxes was through physical work; indeed, Khufu had his pyramid built in 2500 B. C. by slaves and taxpayers. In Rome, Augustus created the centesima, a tax of 1% on all business transactions in the Empire, while in the Middle Ages the church levied a similar tax called a tithe, although this time at 10 %.

At any rate, taxes in ancient times were not equitable and were created by power and force, when one nation imposed itself on another, or were simply ordered by kings and lords.

Modern tax collection in Spain began with the Tax Reform of 1845 which unified taxation throughout the country and prioritised direct taxation over indirect taxes. This reform gave rise later to the taxation of income, wealth and inheritances.

Recent times have been somewhat turbulent in terms of taxes in our country: new types created have attracted widespread criticism, some of it highly justified. For example, the prestigious Foundation for Applied Economics Studies (FEDEA) is calling for far-reaching tax reform and for a halt to the adoption of tax decisions for purely electioneering purposes. Cases that spring to mind include the levy on banks and energy companies and the so-called «tribute» on large fortunes, all of which are considered «highly dubious».

In a similar vein, Ignacio Ruiz-Jarabo, former director of the Spanish Tax Authority and of the State Industrial Holding Company (SEPI), is of the opinion that «fiscal demands exceeded the limits of rationality». However, it is worth noting that Ruiz-Jarabo held his posts under the governments of the Popular Party.

Still, our topic here is taxation and I urge you once more not to get airsick as you read here that Spain has 121 different taxes. According to Spain’s supervisory body for the state sector and public finances (IGAE), central, regional and local governments administer 79 taxes. Of particular interest is the fact that the different regions (excluding the Basque Country and Navarra) collect 76 taxes which are exclusive to them. One of these is our own IGIC tax here in the Canaries. As a result of all these taxes, Spain is the most decentralised nation in the European Union in terms of the powers enjoyed by regions to adopt their own taxation legislation.

Perhaps the biggest risk for taxpayers is over-taxation. In fact, it is quite possible that the same taxable circumstance could attract four different taxes. A clear example of this anomalous situation is our Wealth Tax. A property can be subject not just to this tax but also to the IBI property tax, IRPF income tax (if it is a second home) and, as of now, the socalled «solidarity tax».

This fiscal mess, nothing short of a spider’s web of taxation according to experts, can lead to distortions within the tax system and the public can become totally lost when trying to establish which aspects they have to pay taxes for.

If you, dear passenger, feel that taxes are like a sudoku and the income tax return gets more complicated every year, don’t worry, it’s not you. Just remember the ironic statement attributed to Albert Einstein: «The hardest thing to understand in the world is income tax».

Follow the cabin crew’s instructions, fasten your seatbelts tightly because sharp bends lie ahead, even if we are on a plane. Have a good flight.