The tax office of Catalonia

Julio Gómez-Pomar. Director. <a href="http://www.ie.edu/eng/claustro/claustro_centros_detalle.asp?id=18">PWC/IE Centre for the Public Sector</a>

4 May 2007

Catalonia is seeking more fiscal independence from Spain. This can be a positive development, if it is carried out properly.

On 23 January of this year, the regional government of Catalonia—the Generalitat de Catalunya--enacted a bill to create its own tax agency. The fiscal issue has become one of the most controversial points within the new autonomous Statute--the set of rules governing the region’s relationship with Spain. It also has given rise to concerns about the fair and effective application of the tax system and the opportunities and risks it involves.

According to the Catalan government and the new Statute, the Catalan tax agency is a first step in a two-year process to create a consortium in conjunction with Spain´s national tax office. The new entity will be responsible for collecting taxes from the citizens of Catalonia. Eventually, the region could possibly have a single tax office.

Not only does it seem reasonable, but also logical from an economic point of view, for the Generalitat to assume responsibility for the management, settlement, inspection and collection of taxes—an administrative power that the central government is gradually devolving to the region. The Catalonian parliament also is empowered with the authority to levy taxes on the region. In this case, enabling Catalonia to administer both regional and Spanish taxes through the new office doesn’t represent a far-reaching modification and will reap benefits for both the Administration and taxpayers alike.

On the other hand, the logic for granting the Generalitat the power to administer regional taxes and others that have been fully transferred from the central government doesn’t apply to taxes for which the region has only partially assumed responsibility. It seems reasonable for the Catalan government to want to manage regional income tax, which is equivalent to 35% of the amount it receives from VAT and to 40% of the amount it receives from special taxes. The consortium formula also seems legally ideal for developing this type of administrative capabilities.

However, there is also no doubt, or at least in my mind, that shared tax administration is not going to be easy. Distributing taxes on a statistical level isn’t the same as sharing a taxpayer census between two tax offices. At least experience in regional systems shows that many points of friction appear. The problems that arise from trying to assign taxpayers to one administration or the other for tax inspection or for the management and execution of bankruptcy proceedings will be no small matter. But there is another area where the cooperation and cohesiveness of this consortium will be imperative and where a lot of energy should be devoted; routing out tax fraud.

The efficiency of tax offices in Western countries depends increasingly on intelligence-related tasks. Fraud prevention requires in-depth field studies that reap results over the medium term and provide detailed analyses of complex financial and economic transactions. This requires gathering relevant national and international information on taxpayers, massive exchanges of information with other members of the European Union and third party countries, consultations with intra-community operators on VAT, etc. In this case, unified action and co-operation are essential.

State and Catalonian tax officials will have to work together to guarantee the right of citizens to know which tax office collects their payments.
They will also need to offer services that make things easy and clear for taxpayers, while ensuring that the different layers of government don’t increase the costs for citizens of fulfilling their fiscal obligations.
To date, the Statute has sought to promote cooperation between the two administrations by allowing citizens to file taxes at either the state or regional offices. This indicates an intention for simplifying tax procedures, if nothing else.

But more clear and open co-operation is needed if a tax agency of the 21st century is to operate correctly. For example, citizens have the right to demand that all tax obligations be simple and cheap to fulfil. They also have the right to expect tax agencies to persecute tax fraud as effectively as possible. Let’s hope that public leaders and politicians can introduce this process without it being perceived by the public as a pointless tug of war in which one loses administrative power and the other gains them. Finally, the new Statute raises the possibility of the consortium becoming the single tax office of Catalonia. Now that idea is of great political significance.

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