Local taxes

economic-dictionary

Local taxes are those taxes established and managed by city councils in Spain and that a citizen must pay to reside in the municipality in question.

A tax is the economic amount that a citizen must pay to the State without receiving a direct consideration. Taxes do not guarantee the receipt of a specific good or service, but are paid to cover certain expenses aimed at increasing social welfare.

In the case of local taxes, their main characteristic is that they are managed by the town councils of the different municipalities. While it is true, these taxes must be aligned with the country's legislation and must comply with the principles of justice, generality, progressiveness and the equitable distribution of the tax burden. Added to this, they cannot be categorized as confiscatory.

Finally, it should be mentioned that the tax rate for local taxes is usually limited by the country's legislation. The most common is to find a tax interval that the city council can choose. In this way, a certain homogeneity is ensured among the municipalities throughout the territory.

Types of local taxes

In the case of Spain, the legislation establishes the following taxes as mandatory to be collected by the different municipalities:

  • IBI or Real Estate Tax: This tax is direct. Tax the value of real estate.
  • IAE or Tax on Economic Activities: Taxes the fact of exercising business, professional or artistic activities within the territory.
  • Tax on Mechanical Traction Vehicles: This is a tax levied on the ownership of vehicles of this nature that can circulate on public roads.

However, there are two other types of taxes that are optional to be required by municipalities:

  • Tax on Constructions, Installations and Works: It is an indirect tax. This taxes the realization of any construction, installation or work for which the obtaining of the corresponding license is required.
  • Tax on the Increase in Value of Urban Land: This last tax is direct. Taxes the increase in value that a land may experience.

In conclusion, local taxes are those taxes that are managed and established by the town councils of the municipalities. Some of them are imposed by the State and the funds obtained are managed by the corresponding Local Treasury.

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