Effective rates

The estimated effective rate on income and expenditure for 2020 was 14.9%, % lower than in 2019. Although provisional until the personal income tax and corporate tax rates for the 2020 financial year are known, the rate is the lowest since direct taxes were reformed in 2015 and 2016 and a downward step was produced after which a very slight upward trend was observed (Chart 1.16). This upward trend was due to the continuous increase in the effective rate on household income. This growth continued in 2020, but was offset by the fall in the effective corporate tax rate. In any case, the decrease in the rate was due more to the composition effects of the tax basket (especially in a year with strong variations in the bases) than to the fact that there were regulatory changes that significantly altered the level of taxation; The numerous regulatory measures that were in force in 2020 mainly affected the form of income and only marginally affected the tax burden.

In personal income tax, the effective rate increased to 12.9%, 1.1% more than in 2019 (Chart 1.16). As noted for the set of bases, the increase was mainly a consequence of the significant changes in the internal composition of the tax. Withholdings on income from work and economic activities are a good example. The effective rate rose by 0.4%, but when you look at its component parts, you can see that there were considerable changes in rates. The average wage rate thus rose by 4% and the pension rate by 2.2%. In the first case there were two reasons: the increase in the rate of salaries of the Public Administrations. and the greatest impact that the drop in activity had on sectors with lower average wage levels and rates. This last element partially offset the lower withholdings that occurred due to the fall in the wage bill and the lower withholdings derived from the ERTE. In the case of pensions, the rate increase was similar to the increases seen before the increases in the lowest pensions that occurred in 2018 and 2019.

The estimated effective rate for corporate tax in 2020 is 19.4% on the consolidated tax base, down from 20.4% in 2019. In relation to the positive accounting result, the rate would be 8.3% (7.8% in 2019). The regulatory changes did not affect the tax accrued and, therefore, the decrease is only due to the different pace at which the profits and bases of the different groups of taxpayers decreased.

In VAT, RDL 15/2020 introduced the zero rate for essential medical supplies to combat COVID, as well as the super-reduced rate on books, newspapers and digital magazines. Both measures had little estimated impact on the effective rate, which stood at 15.2% (compared with the average of 15.3% observed over the last four years).

The average effective rate on Excise Taxes increased by 5%, more than in 2019 when it increased by 4.5%. The main reason for the increase was the significant drop in energy prices, particularly those of petrol and diesel. As in other years, it should be noted that the effective rate discussed in this section is calculated based on the value of consumption and is done only for the purpose of completing the aggregate analysis of bases, rates and income, but it is not always the rate applied to products since in several figures the base is physical consumption and not the value. In terms of figures, the most notable thing in 2020 was the 2.8% drop in the effective rate of gasoline and diesel fuel due to the sharp drop in gasoline consumption, the product with the highest rate.