General tax on business traffic (IGTE)

economic-dictionary

The general tax on company traffic (IGTE) was an indirect Spanish state tax that was levied in cascade on company traffic operations.

That it is an indirect tax means that the taxpayer pays it to an intermediary (businessman) who is the one who enters it on the farm. That its taxation is cascading means that, unlike the value added tax (VAT), it taxes all phases of the entire production system and not only its added value. Of course, their rates were lower, although the global quota could be higher for the consumer.

Repeal of the IGTE and appearance of VAT

This tax, now repealed, was created in 1964 and we can consider it as the predecessor of VAT in Spain. On January 1, 1986, with the entry into force of VAT, this tax was partially repealed. This is due to the fact that Spain had to adopt the Community VAT in order to enter the European Atomic Energy Community (EURATOM). In fact, Law 30/1985 of August 2 on VAT established it in final provision 2 a).

Of course, this tax was only partially repealed, as we have commented. Thus, in the Canary Islands, Ceuta and Melilla it was still in force. In the first case, it disappeared with the entry into force of the General Indirect Canarian Tax (IGIC). In the second, the autonomous cities of Ceuta and Melilla replaced it with Law 8/1991, of March 25, on Arbitration on Production and Importation.

Until December 2019, the Canary Islands paid compensation each year to the central government due to the disappearance of this tax. As of that date, the Council of Ministers agreed to suspend them, which meant a saving of more than 160 million euros for this community. On that same date, the Canarian government and the former finance minister, Cristobal Montoro, agreed on the last payments.

VAT considerations

To finish today we are going to comment on some of the advantages of VAT with respect to IGTE. These are both for the public finances and for the administered ones:

  • VAT is more beneficial for the administration due to its simplicity and collection capacity. In fact, with VAT, retailers and professionals also began to pay taxes.
  • For those administered, it is a stimulus to investment and a factor for promoting employment. In addition to not posing any additional management problem with respect to the IGTE.
  • On the other hand, the IGTE was a cascade tax and that meant taxing all phases of the production process. In this way, the more steps it had, the greater the tax burden.This favored vertical concentration and caused distortions in the economy.
  • In contrast, VAT taxes only the value added at each stage. In this way, the final consumer's tax burden is always the same. Therefore, it can be considered a neutral tax, unlike the IGTE.

Tags:  banks administration economic-analysis 

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