The Bank of Spain has ruled out this Wednesday the suitability of ending the so-called pink rate, which taxes feminine hygiene products with a VAT of 10%, compared to a super-reduced VAT of 4% that other basic products have and which is the one that We can claim for this type of references.
For now, it has been the Ministry of Finance that has stopped the idea of including a reduced VAT for feminine hygiene products in the abortion law, but the socialist ministers of the Government have left the door open for the measure to be included in the next General Budget Law.
In the Bank of Spain, which this Wednesday has just published its annual economic review report, they are opposed to that proposal and all of them involve a VAT reduction. "The reality is that we are an anomaly in the European Union with so many products with reduced or super-reduced VAT rates," said Ángel Gavilán, general director of Economy and Statistics of the body.
In its 2021 report, the Bank of Spain argues for the need to boost consumption taxes "academic literature has pointed out that there are potential gains, in terms of both efficiency and equity, from giving a greater relative weight to taxation on consumption versus income tax”.
To such an extent that it calls for a comprehensive review of the Spanish tax system "to assess whether, as a whole, the different tax figures achieve their objectives in the most effective and efficient way possible."
The comparison with the countries of the European Union and even only of the euro area, shows that in the period between 2015 and 2020 both the collection in the field of indirect taxation and the effective taxation of consumption are lower in our country. With regard to direct taxation, less collection is observed in Spain through corporate taxation, while collection through income taxation is in line with the EU-27 average.
Traditional economic theories associate taxes associated with income as the way for better social redistribution, but the Bank of Spain report proposes alternatives to achieve this redistribution effect.
Given that the current crisis is affecting sectors and households in a very heterogeneous way and consumption taxation has proven to be a mighty source of public revenue, the Bank proposes to articulate the redistributive effects with policies focused on those who need it most.
Thus, “this compensation could be articulated both through adjustments in personal income taxation and through different transfer schemes to households with lower income. The amount and scope of these compensatory measures should be established based on the distributive preferences of society”, the report states.
That is to say, the Bank of Spain's proposal is to bet on a general application of the general VAT rate and suppressing the maximum possible exceptions of the reduced or very reduced rates so that those who have more pay more, with the consequent increase in collection for the state.
And at the same time, design compensation policies for the poorest households that make it possible to reduce the effective rate of the tax. "This is what is called negative taxes, that is to say that even taxpayers who, due to their income, are not obliged to present the income tax return, could present it to receive compensation in this way," explains Gavilán.
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