Drugs and prostitution and other tax reforms in Spain

Taxes Wed, 18 Jun 2014
Drugs and prostitution and other tax reforms in Spain

The debate over whether prostitution and soft drug use in Spain should be legalised has continued for centuries. Who would have thought it would be the taxman who would start to get involved. It is now being suggested by the Organisation of Tax Inspectorsthat the debate about legalisation be opened up yet again, this time with a fiscal purpose as well as social.

Everyone knows that prostitution and drug use exist and for some it’s big business, but now it’s being suggested that this ‘big business’ should be acknowledged in Spain’s GDP. Ransés Pérez Boga, president of the Inspectores de Hacienda del Estado (IHE) has asked for the legalisation issue to be reconsidered in a document on fiscal reform in Spain and the black market which contains more than 300 recommendations.

One of the reasons given for bringing these lucrative markets into the open is that it is claimed that it will provide more reliable information. At present what we know tends to have been presented by those with a private interest in the figures. Of course, at present being illegal, neither of these activities generate any revenue for the Spanish tax office. Make them legal, and there is immediately a potential new source of income.

It is claimed that prostitution alone generates some 18 million euros which could provide, at 30%, 6 million to the state. As far as the Spanish tax office are concerned there is much hypocrisy surrounding prostitution and legalising it should not be ruled out. Similarly Domingo Carbajo, tax inspector, has highlighted the experience of countries such as Uruguay which has recently legalised marihuana.

These are not the only proposals being made. Other suggested tax reforms include:

  • The removal of the high denomination note of 500 eurosin order to avoid payments being made in the black
  • Automatic detention in prison for those found guilty of high levels of tax evasion even if there has been no previous offence and repayment has been made
  • The raising of serious tax fraud from the threshold of 120,000€ to 600,000€ so that judges can concentrate on more serious fraud and ensure higher penalties for these
  • Increasing the use of card payments and electronic payments and broadening restrictions on cash payments
  • Increasing the exchange of information with Spanish social security
  • Requiring banks to identify customers in tax havens
  • Improving the exchange of information between countries and possibly paying informers
  • Reforming the process of taxing the self-employed and small businesses

The need for joined-up information sharing between countries is nothing new. Those who can, are accustomed to moving their money around and the conflict between privacy and accountability does not go away.

The tax authority has long recognised the level of tax fraud there was during the boom years and the supremacy of the construction industry. Eradicating the traditions surrounding cash payments and the partial disclosure of actual house prices continues to feature in Spanish tax reform policy.

Many of these proposed reforms have been heard before and no doubt will again. Legalising prostitution and soft drug use in Spain will be a new one for most.

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