A few weeks ago, a proposed self-employment quota reform which seeks in principle, the progressiveness in the quota until the year 2031. Those self-employed who bill (do not charge) less than 600 euros in the month will go to 183 euros compared to the current 281 euros. Now all those who billing exceeds 1,300 euros The quota will be progressively increased. If we analyze the data, it can be seen that in practice, the self-employed share will be approximately 30% of declared income in 2031.
If we add 21% VAT and 15% advanced personal income tax withholding to this 30% self-employed quota, the self-employed will work to pay taxes, since the fiscal pressure at the end of the quarter will be 60%.
With this proposed tax pressure, it is easy to foresee that many self-employed workers will cease to be self-employed in the following years and the underground economy will increase, which will have an absolutely opposite effect on the collection that the State wants to make.
Income does not mean collection. The profit and loss account and the treasury of a company or a self-employed person are very different. Issuing an invoice today and not collecting it until after months is common. Law 15/2010, together with the special default measures due to covid-19, set a legal payment term of 30 days for public administrations and 60 days for companies. In reality, the Central State Administration pays an average of 39 days, the municipalities 118, the CC. AA. to 140 days and large companies to 100 days, according to the ATA Report. That is to say, nobody complies with what the regulations mark.
The one who suffers most from this situation is the self-employed person, who, on the other hand, does have to pay the self-employed fee on the first day of the month and the taxes no later than 20 days after the end of the quarter. The real problem is that you have to pay taxes on the invoices that you have issued during that quarter and of which, taking into account the previous terms, you will only have collected a small part. In practice, this causes serious treasury problems.
The reform of the self-employed quota and the real tax burden
It is clear that VAT is a neutral tax, but the vast majority of self-employed cannot invoice it separately and, therefore, it’s just another burden. If we place ourselves in the year 2031 and with the proposed quotas, these workers will allocate 60% of their turnover to pay taxes and the remaining 40% will have to pay their costs and have to live.
To see a numerical example, a self-employed person who invoices 1,500 euros (VAT included) per month and, therefore, 4,500 euros per quarter, in 2031 will pay a quarterly self-employed fee of 1,422 euros, a VAT of 945 euros and 675 euros will have to be withheld in personal income tax. In total, a total of 1,458 euros will be left after taxes for the quarter. All this, assuming that you have collected the bills, otherwise you will have to pay 3,042 euros out of pocket.
What are they doing in the rest of Europe?
Each country has its own system and incorporates different benefits:
- In the United Kingdom, they pay 14 euros per month if they do not reach 600 euros and 9% of the income afterwards.
- In the Netherlands, a fee of 50 euros per month is paid.
- In Germany, a fee of 140 euros per month is paid if the income does not exceed 1,700 euros.
- In France, between 12% and 21% of income is paid, depending on the sector.
- In Italy, between 22% and 28% of the rent is paid.
The Laffer Curve
At this point, the Laffer Curve comes into play. This theory indicates that there is a time when raising taxes will reduce tax collection, since income will no longer be declared. With this proposed tax pressure, it is easy to foresee that many self-employed workers will cease to be in the following years and the shadow economy will increase, which will cause an absolutely opposite effect on the collection that the State wants to make.
With this reform, many self-employed workers will cease to be in the following years and the shadow economy will increase, which will have an absolutely opposite effect on the collection that the State wants to make.
The proposed quota reform has received serious criticism from around the world, and rightly so. Spain is the country with the highest tax burden for its self-employed in its environment, with a fee that will reach up to 30% of its turnover, not of its income, VAT and personal income tax apart. The situation is absolutely unsustainable and it would be necessary for this quota to be adapted to the charges made by the self-employed, especially taking into account that the first ones to fail to meet the deadlines are the administrations themselves.
Andrei Boar, professor in the Department of Finance, Accounting and Control at BSM.
