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Spain pushes ahead with windfall tax on banks and energy groups

Spain on Thursday went ahead with its controversial plan to impose windfall taxes on banks and energy companies, as lawmakers approved the move despite concerns from international institutions.

The Socialist-led government proposed temporary taxes in July to raise €7 billion as it seeks funds to ease the painful impact of high energy costs and inflation, especially on low-income households.

Windfall taxes have become a source of contention elsewhere in Europe since Spain first announced its plan, straining relations between governments that say taxes on extraordinary profits are justified and companies that say it harms the economy at large. appears.

Late Thursday, Spain’s windfall bill was approved by Congress, the lower house of parliament, which will now send the bill to the Senate for a final vote.

Pedro Sánchez, Spain’s Prime Minister, has said the taxes are a way for big companies to “lend a hand” while many Spanish families are suffering from a sharp increase in the cost of living.

Spain wants to collect a total of 3 billion euros from major banks over the next two years through a tax of 4.8 percent on their income from interest and commissions. From utilities, it aims to raise €4 billion over the same period with a 1.2 percent tax on their sales.

Teresa Ribera, Spain’s energy and environment minister, told the Financial Times that the taxes raised some “quite technical” questions about how to determine what income would be taxed.

The plan has been roundly criticized by the largest groups that will have to pay the taxes, including lenders Santander and BBVA and energy producer Iberdrola.

This week, the IMF weighed in, saying it “will be important to monitor the impact of the levies on credit availability, credit costs and banks’ resilience, as well as energy companies’ incentives to invest”.

The IMF highlighted the fact that in both sectors, Spanish taxes are levied on earnings rather than profits. While bank income from interest payments increases as interest rates rise, the fund noted that costs could also rise if an economic slowdown led to more loan defaults.

Earlier this month, the European Central Bank criticized the bank tax, warning in a non-binding opinion that it could harm lenders’ capital position and distort monetary policy. It also questioned Spain’s requirement that banks not pass on the cost of the tax to customers, which goes against ECB policy.

Ignacio Galán, executive chairman of Iberdrola, told the Financial Times that the energy tax was “arbitrary”. He said the idea that his company generated windfall profits from record high energy prices was nonsense because it sold much of its electricity through long-term contracts at fixed rates.

Utility groups will benefit from an amendment added in recent weeks that stipulates that the tax will not apply to income from regulated activities, including the operation of electricity and gas distribution networks.

Spain’s plan is separate from an EU proposal for a windfall tax that would only apply to oil and gas companies. Eurelectric, the trade organization for the European electricity industry, denounced Spain’s attempt to target a larger group of companies on Thursday.

Another amendment says that the Spanish authorities must evaluate by the end of 2024 whether the taxes should be made permanent. The IMF said: “These measures should remain temporary and should not be seen as a substitute for necessary medium-term tax reform.”

Alicia Coronil, chief economist at Singular Bank, a Madrid-based private bank, said the government should do more to reduce government spending and broaden the country’s tax base, including by attracting investment and fighting the underground economy . “We shouldn’t always put more pressure on those who already pay taxes,” she said.

Additional coverage by Alice Hancock in Brussels

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