Taxes: Spain would collect 1,000 million more if it taxed alcohol at the European level | Economy

Spain would collect about 1,000 million euros more per year if it taxed alcoholic beverages with a tax rate similar to that applied in the European Union. It is one of the conclusions drawn from the analysis carried out by the group of experts gathered by the Ministry of Finance to write the white paper on tax reform. Not in vain, Spain is the fifth country in the EU-28 (adding the United Kingdom to the Member States) that obtains the least money from the tax applied to distillates with a graduation of 40% or more. It is also one of the least money making for beer.

As explained by the technicians, the collection of special taxes on all alcohol in Spain represents 0.29% of the total tax revenue of 2019, about 618 million. In the EU average, however, these drinks contribute 0.79%. With a similar rate in Spain, taking into account that in the year prior to Covid the country entered some 213,000 million via taxes, the part corresponding to alcohol could have reached 1,682 million, 1,065 million more than registered.

The gap between Spain and the rest of the continent is explained by the type of tax applied to beverages with the highest alcohol content, as well as to beer and wine. The comparative evidence carried out by the experts shows that in 2021 the tax rates in Spain, in nominal terms and without applying adjustments for purchasing power parity, “are among the lowest excise taxes in the EU applied on alcoholic beverages of higher alcohol content and about beer”.

In particular, the tax is 48% below the EU average in the case of distillates and 79% in the case of beer. For its part, the tax rate on wine adopts the minimum allowed.

The difference in euros collected in each country by type of drink illustrates the gap well. For every 70 centiliters of distillate, Finland enters 14.1 euros in taxes, Sweden, 13.8 euros, Ireland, 11.9 euros, and the United Kingdom 9.05 euros. The EU average, adding London, stands at 5.13 euros, above the 2.69 euros that Spain enters. In the case of beer, Spain obtains 0.03 euros for every 33 centiliters, below the European average of 14 cents, the 21 cents of Estonia and Greece and the 63 cents of Finland.

The experts gathered by the Treasury recall in their document that these special taxes have the objective of “disincentivizing excessive consumption” of goods that generate adverse effects on the population. If to this is added, the technicians remind us, that in Spain the fixed component of alcohol taxes is not periodically updated based on inflation, the conclusion is that this tax instrument loses effectiveness when it comes to achieving the objective of reducing consumption.

For all these reasons, the technicians recommend, it would be desirable to review and update the tax rates on certain alcohol consumption. This adjustment, they add, should be made based on the social cost generated by this excessive intake. According to the white paper, excess alcohol in Europe entails a social cost that ranges between 1.08% and 3.2% of GDP.

Tobacco and sugary drinks

Within the healthy taxation, the group of experts also analyzes the situation of tobacco and sugary drinks. In both segments, the technicians propose a series of changes to, through taxation, modify the consumption patterns of the population.

In the set of tobacco products, cigarettes stand out, taxed with a formula whose structure contains a proportional rate on the sale price and a specific component. Spain, the experts recall, is among the European economies with a reduced weight of this last component (only 17%), which is the one that allows a greater internalization of the individual and collective costs associated with consumption. Therefore, the expert committee proposes to make the specific component the main one.

In parallel, the most appropriate alternative to reduce the consumption of sugar contained in beverages is, according to experts, a special tax with a fixed component graduated according to the harmful effect of each product on health. This tax, mixed with a possible increase in the VAT rate, would help reduce the weight of these drinks.

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