New Year tax hikes hit telecommunications, electricity, petrol, and company profits

ELECTRICITY, fuel and consumer goods will go up in price from Monday (January 1) as part of a tax hike aimed at reducing Spain’s national debt in order to comply with European Union regulations.

Corporate tax on profits, or Impuesto sobre Sociedades, will suffer the steepest rises, and companies will no longer be able to offset losses made by their affiliate firms or holdings against their bill.

This has already led to major organisations shutting their small branches and subsidiary companies.
The move will affect around 15,000 companies in Spain, a country where the bulk of businesses are small, family-run enterprises.

In total, Spanish companies will shell out a further €4.6 billion in 2017.

Alcohol – except wine and beer – cigarettes and loose tobacco, and sugary drinks will attract a new tax, clawing back €350 million for the government.

Tax on cigarettes will rise by between 2.5% and 6%, and on alcohol, by 5%.

The soft drink tax has not yet been calculated, but has already sparked outrage from major producers.

A further ‘environmental tax’, built into the increases, is expected to raise another €200m.

After two years of petrol and diesel plummeting in price, the honeymoon is now over with the cost of a litre of diesel rising from an average of 96 cents a year ago to €1.166 from Monday.

Petrol will go from its current average of €1.14 to €1.27, meaning a typical 21% rise on fuel across the board.

Mains and bottled gas and electricity are expected to rise, despite the government having frozen standing charges for the third year running.

With raw material increasing by 3% annually, it is expected this will be passed onto the consumer with an extra margin for additional tax income.

Telecommunications will rise in price, with Spain’s main national operator Telefónica having announced hikes from February and most other major providers plan to do likewise in 2017.

The basic price of electricity per megawatt per hour has increased, meaning consumption will rise by 30% in January.

Given that 60% of electricity bills are made up of taxes and charges, the actual cost of use accounts for just 40% of what the consumer is charged monthly or bi-monthly, making it difficult to make substantial savings by being more careful about domestic power use.

With the 30% power price rise, this will mean around 10% per month extra for household bills.

The National Markets and Competition Commission (CNMC) has criticised the electricity hike and plans to investigate whether claims of supply shortage are true, or just an excuse.

Lack of rainfall and wind across the country over the past year has meant wind farms and hydroelectric plants no longer producing enough power and, now, with winter having set in, less sunlight means a reduction in solar power.

But with so many different tariffs paid by different consumers, experts say it is difficult to predict how much electricity will rise by – some claim it could be as little as €3 a year.

Towns which have not had a catastral review in more than four years will be forced to do so this year.

The catastral is the basic value of the plot and rebuilding cost of a property, private or commercial, and a percentage of this value is charged annually as IBI, or property tax.

In 2012, town councils which had not had a recent catastral review were obliged either to do so or to raise the percentage of this charged as IBI to 1.1%.

Now, they do not have a choice, and at least 2,400 municipalities in Spain will carry out a review this year.

Councils have some freedom to change the base percentage rate, and residents in towns which have not had catastral reviews since the 1980s or 1990s are hoping their local governments will exercise this freedom.

But the forced reviews are likely to be good news for towns where the last revision was somewhere between 2006 and 2009, since land and property was at a record high and has since dropped by an average of 50%, meaning homeowners in this situation could actually see their IBI come down in 2017.

Reports from private entities such as AFI and the BBVA bank predict the cost of living will rise by 3% overall next year.

“The reduction in household spending power will be seen most of all in consumerism,” says AFI.

It stresses that in Spain, consumer spending has a huge impact on the national economy, meaning if it falls, so will the GDP.

As the national debt is calculated as a percentage of the GDP, causing the GDP to reduce will increase the debt, meaning the extra tax hikes may not make any difference at all to the final figure, AFI says.

BBVA Research says tax increases are likely to lead to a negative effect ‘of about 0.2% or 0.3%’ on GDP growth in the short-term, and could reverse Spain’s still-weak recovery as well as putting employment at risk.

Published Think Spain30 December 2016

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