Global Daily Tax News, Spain Urged To Shift Tax Burden To VAT, (Jun 1, 2026)

Repeating recommendations from earlier reports, the International Monetary Fund has called on authorities in Spain to reduce taxes on labor, funded by an overhaul of value-added tax rates.

As in reports in 2024 and 2025, the IMF's latest Article IV consultation report for the nation recommends that Spain should lower the relatively high tax burden on labor by increasing the efficiency of indirect taxation.

The report says, "[...] reduced VAT rates do not constitute an efficient means of income redistribution. Removing the reduced rates from the normal VAT on a wide range of products (for example, for hotels and restaurants, vacation rentals, health, and education and fuel taxation), together with equalizing the diesel excise tax to that of gasoline, could deliver about two percent of GDP in new revenues."

The IMF said, "[...] spread over three years and combined with compensating transfers for lower-income households of 0.4 percent of GDP, such revenue-raising strategy could achieve staff's recommended overall consolidation path for 2026-28 while offsetting the regressive impact of higher indirect taxation on lower-income households."

The report further recommends that Spain redesign the research and development tax credit so it can foster greater innovation, noting the tax credit is generous but overly complex, contributing to low take-up.