3.2.1. Evolution of income for Personal Income Tax

Income from personal income tax grew by 1.2 percent in 2020. Given the very unfavourable environment, the figure would still be positive even if the positive impact of regulatory and management changes is subtracted (without them, revenues would be roughly the same as in 2019). The main reason for this good performance of the tax was the effect that the high growth of public income (wages and pensions) had on income, in addition to the comparison with 2019, when most of the refunds were made as a result of the ruling that declared maternity benefits exempt.

Income from withholding taxes on work and economic activities grew by 1.5 percent. As has been said, the evolution was very different in the public sector and in the private sector, the latter being fully affected by the economic situation.

Withholding tax revenues in the private sector decreased by 0.8 percent. This figure includes the amounts from deferrals granted in the first months of the pandemic and which were recovered throughout the year. The drop is not large compared to the decline observed in activity, which can be explained by two reasons. The first were the ERTEs that softened the impact on employment. Thanks to the ERTE, workers remained in their companies, even though part of their salaries were paid by the Public Employment Service (SEPE). In terms of withholdings, this meant a reduction in income (the withholding rate applied to the part of salary covered by the SEPE was practically zero), but less than what the disappearance of those jobs would have meant. The second reason is related to the restructuring of employment brought about by the economic recession caused by the pandemic, with a greater impact on sectors such as hotels and restaurants, with low salary levels and retention rates. The consequence was that the effective rate of withholding in the private sector increased. This different impact of the crisis on the different productive sectors helps to explain the disparity between the slight increase in income from withholdings recorded in large companies (0.8 percent) and the 4.1 percent decline observed in SMEs (including the rest of the income that includes the deferrals granted and finally paid).

In the AA. Administrations Withholding tax revenues increased by 7 percent. The behavior was similar to that of these incomes in 2019 (growth then was 6.5 percent) and this can be said for both salaries and pensions. In the first case, there was an upturn in the latter part of the year due to the increase in hiring in health and education, and due to the payment of the third tranche of salary adjustments in the security forces. The final growth in 2020 in wage withholdings was over 7 percent, with an increase of over 5 percent in the wage bill and the remainder due to the rise in the average rate. In pensions, withholdings grew by around 6.5 percent, a similar increase to that of 2019, although with a different distribution: The average pension rose less (in 2020 there were no increases as in 2018 and 2019) and the effective rate rose much more (3.5 percent compared to 2019, when it barely grew because the lowest pensions benefited from greater increases), even offsetting the lower growth in the number of pensioners (0.5 percent, 1.2 percent in 2019).

The annual declaration, not affected by COVID as it was the liquidation of the 2019 financial year, also contributed to the growth of the tax. Specifically, the net results of the annual declaration increased by 1,366 million, although more than 1,100 were due to the higher extraordinary refunds for maternity benefits made in 2019. In any case, the campaign was positive, with gross income increasing by 5.1 percent, even though the income that normally accounts for this income (business and capital gains not subject to withholdings or split payments) did not increase substantially in 2019 (as you may recall, in 2018 they had reached a very high level, especially profits). In terms of campaign returns, growth was 2.8 percent and the pace of completion was similar to that of campaigns in recent years.

In the rest of the tax revenues, only the withholdings on profits from investment funds improved compared to the previous year. The year began with strong growth that was cut short in the first months of the state of alarm; After the summer, the previous trend was resumed until the end of the year with increases of more than 50 percent. For the year as a whole, revenue increased by 11.6 percent. In other concepts the situation was the opposite. Withholdings on capital gains fell by 20 percent, with negative rates since March. The contraction in dividends began to be noticed early on, particularly in the largest companies (something that was also reflected in the Non-Resident Income Tax). The declines observed in rental withholdings (-7.4 percent) and in instalment payments (-10 percent) were due to the weakness of activity, although in the latter case also to the reduction in income induced by the measures approved in favor of small businesses.

Evolution of income for Corporation Tax

Corporate tax revenues decreased by 33.2 percent in 2020. This drop in revenue does not provide a good measure of the evolution of profits. Much of this is due to the refunds made in 2018. However, the impact of this shift was cushioned by the existence of extraordinary income from judgments and by the comparison with 2019, when there were refunds also for this reason and due to the payments of the DTA to some companies. If all these elements are corrected, revenues would have fallen by 10 points less, around 23 percent. This rate is in line with the behavior of fractional payments, which are the most important component of the tax, the one most closely linked to the results of companies in the year and which decreased by 27.1 percent in 2020.

The split payments reflected the interruption of activity from the very beginning (the drop in the first payment is due to the second half of March, the first days of strict confinement). Losses were more severe in large companies and groups, and within this group, in consolidated groups, the most important of which paid taxes in 2019 under the minimum payment method. The information available on the results of large companies and groups indicates that profits fell by 34.5 percent in 2020 (-44 percent in groups) and the tax base by 22.5 percent (-31.5 percent in groups). As for SMEs, which mostly file their tax returns based on the last annual payment, not on the profits of the period, their payments decreased by 7.6 percent. Although these payments, due to the way they are calculated, usually respond with a delay to the economic situation of companies, in 2020 the intensity of the fall in activity made the results more negative than expected, particularly in the second payment due to the sharp decline in payments to SMEs that are calculated according to profit (about a third of the total). Added to this is the impact of the measures adopted to benefit SMEs, also concentrated especially on this second payment, and the reduction in the number of taxpayers.

In the rest of the tax revenues, the only growth was recorded, as seen in the personal income tax, in the withholdings from profits in investment funds. In the other withholdings (capital assets and leases) the behavior was similar to that mentioned in the IRPF, and in the annual declaration (corresponding to 2019) the income decreased slightly (-1.2 percent).