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Madrid Leads The Most Competitive Tax System, With Catalonia At The Tail

On the 28th, the Community of Madrid will receive a distinction for becoming for the second consecutive year the autonomous community of Spain with the most attractive tax system due to its tax reduction. This is clear from the Autonomous Fiscal Competitiveness Index (AICF) of 2021 , prepared by the Foundation for the Advancement of Freedom, Tax Fondation of Washintong DC, in collaboration with Friedrich Naumann, Civismo Foundation, the Institute of Economic Studies, the Mariana Foundation and the Oström Institute.

To reach this conclusion, the study has analyzed, compared and classified 19 models, and not only their taxation, but also the ability to attract investment and create employment, so it has been a priority to know how much is collected and what are the tax rates.

In this balance, and while the president of the Community of Madrid, Isabel Díaz Ayuso, has just announced the elimination of all the own taxes that remain in the region, the Community of Catalonia is at the bottom of the rest of the autonomous administrations with the biggest tax.

Immersed in promoting its green taxation, Catalonia occupies the last position in the ranking, and it has been doing so since 2018, with the highest number of its own taxes, specifically 15. Among them, a civil protection tax, water charges, taxes on stays in tourist accommodation, on the emission of nitrogen oxides from commercial aviation, on empty homes or on sugary drinks.

From the first to the last
With Madrid in the lead, Vizcaya, Álava and Guipúzcoa maintain the second, third and fourth positions, respectively, as they have not undertaken important tax reforms. Of course, although in 2021 the Basque councils have not deflated the income tax rate, they have raised the limit established below which there is no obligation to self-assess from 12,000 euros to 14,000 euros.

At the top, in fifth place, below Madrid and the Basque Country is the Canary Islands. This region loses score compared to 2020, as it has not regulated its own rate on Heritage, so that it is affected by a new state rate.

On the other hand, Catalonia, Valencia, Aragon, Asturias and Extremadura lead the communities with the worst overall score. According to the report, they obtain low marks in almost all the components of the index but especially in the three most important taxes: Income, Estate and Inheritance.

In the case of Catalonia, the index highlights that the region has twice as many taxes as the average. In addition, it observes major deficiencies in the structure of the income, wealth and inheritance tax.

The suspense of Valencia comes from the introduction of two new sections in the Income, increasing the maximum rate to 29.5%. It also raises the maximum marginal rate to 3.5% in Equity and reduces the exempt minimum. Likewise, without reforms in the Income, Patrimony and Inheritance tax, Aragon, Asturias are also in the caboose of fiscal competitiveness.

Attract and create employment
The IACF also uses other elements of the tax system that can increase or reduce the fiscal competitiveness of a state, region or CCAA. And there is the free movement of workers and capital not only in the European Union (EU). This means that not only large companies but also small and medium-sized companies can choose their domicile, as well as the self-employed and employed persons. It has also been taken into account that, as a result of the pandemic, many companies have implemented teleworking, further facilitating the change of residence of workers and the self-employed.

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