Spain approves windfall taxes

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

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

Spain wants to raise a total of EUR 3 billion from big banks over the next two years via a 4.8% tax on their income from interest and commissions. From utilities, it is aiming to raise EUR 4 billion over the same period with a 1.2% tax on their sales.

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

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

The windfall taxes

Earlier in November, the European Central Bank (ECB) criticised the bank tax, warning in a non-binding opinion that it could damage the capital position of lenders and disrupt monetary policy. It also questioned Spain’s requirement that banks do not pass the cost of the tax on to clients, which runs counter to ECB policy.

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

A further amendment says that at the end of 2024 the Spanish authorities should evaluate whether the taxes should be made permanent.

Bank executives have said the planned tax could hamper credit for an economy still struggling to recover from the pandemic and facing headwinds from the war in Ukraine. Lenders also say that a rise in interest rates, as is happening in Europe, doesn’t necessarily result in extra profits.