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Amadeo Fuenmayor publishes an article in «Valencia Plaza» on the Valencian tax reform

  • March 21st, 2023

The Director of the Regional Taxation Chair, Amadeo Fuenmayor, addresses in this article the impact of the Valencian tax reform on taxpayers.

Firstly, Amadeo Fuenmayor discusses the consequences that the increase in inflation has had on people's daily lives, as well as on taxation, highlighting the effect on Personal Income Tax (IRPF), given that in this tax there are many monetary references in nominal terms. Given that the Personal Income Tax (IRPF) rate is progressive, if it is not updated, inflation will cause average tax rates to rise.

In this context, five regional governments (Andalusia, the Valencian Community, Galicia, Madrid and Murcia) have modified the Personal Income Tax (IRPF) by 2022. The author analyses the impact of these reforms, highlighting the different impact they have had, in each Autonomous Community, on taxpayers with different income levels. In Murcia the effect of the reform is homogeneous, in Andalusia and the Valencian Community the reform benefits lower incomes to a greater extent, while in Galicia the tax saving grows with the base and in Madrid it grows with the income, which benefits taxpayers with the highest incomes.

Focusing on the Personal Income Tax (IRPF) reform in the Valencian Community, Amadeo highlights how this reform tries to offset the negative effects of inflation; it redesigns the regional rate, which was flawed, and benefits lower incomes, as their tax bill will be reduced more than that of taxpayers with higher incomes. In addition to the change in the rate, the author highlights other elements of the reform that will benefit a greater number of taxpayers, such as the increase in the minimum rates and the creation and increase in deductions.

In conclusion, Amadeo provides empirical evidence of the redistributive capacity of the reform through an evaluation carried out by the UV Regional Taxation Chair. The results show that the reform will benefit a 58% of Valencian taxpayers. The reform will entail an almost null improvement for those taxpayers who already did not pay Personal Income Tax (IRPF) and for high-income taxpayers, while it will be very beneficial for low-income taxpayers.