Credit By: Dunya News
In a move that is likely to spark controversy among businesses, Spain has decided to extend its windfall tax on banks and energy companies for an additional year. Prime Minister Pedro Sánchez announced this decision following the final cabinet meeting of 2023. The tax, initially a two-year measure, will now be applicable for a third year, extending into 2025. This extension is part of the government’s efforts to address the impact of inflation on citizens, funding subsidies for fuel and public transport.
Background and Criticisms
Introduced in 2022, the windfall tax targets businesses that have allegedly benefited significantly from high interest rates and soaring energy prices. It is expected to generate approximately €3 billion in its first year (2023). However, this move has faced strong opposition from various sectors, with companies, including major banks like Santander and CaixaBank, as well as energy giants such as Repsol and Iberdrola, criticizing it as unfair and detrimental to business interests.
Extension and Amendments
Despite the discontent among affected businesses, Prime Minister Sánchez announced a notable amendment to the windfall tax. Energy companies will now be allowed to deduct the value of certain investments from their taxable income or revenue. This adjustment aims to incentivize green investments, aligning with Spain’s commitment to environmental sustainability. The deductions will apply to investments linked to industrial projects and the decarbonization of the production system in the country, starting from January 1.
However, the banking sector will not benefit from similar relief. The decision reflects the government’s stance that, despite a decrease in interest rates, banks’ profit margins remain high, making the argument for relief less solid.
The windfall tax imposes a 4.8 per cent levy on the income from interest and commissions for Spain’s largest banks. Similarly, large energy companies face a 1.2 per cent levy on their revenues. The government initially presented the tax as a means of promoting “fiscal justice,” emphasizing that businesses with higher earnings should contribute more to support the majority in society.
Legal Challenges and Confidence
Unsurprisingly, the windfall tax has faced legal challenges from affected companies. Many have launched appeals at Spain’s National High Court and directly contested the tax at Spain’s tax agency after making their initial payments. Despite this opposition, the government has expressed confidence that the tax will withstand legal challenges, underscoring its commitment to fiscal measures aimed at balancing economic interests and social welfare.
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