UPDATE 2-Spain tax tweaks fall short of calls for system overhaul
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MADRID, June 28 (Reuters) - Spain announced tax increases on spirits and tobacco, and cut back on corporate tax deductions on Friday, but the measures fall short of calls for deeper changes to a system with one of the lowest revenue rates in Europe.
The measures, which form part of the government's battle to raise public income hit by an economic slump, will boost revenues by an estimated 4 billion euros ($5.2 billion), or half a percentage point of gross domestic product, a year, a spokesman for the Treasury Ministry said.
Spain's tax revenue has been battered by a five-year off-and-on recession after a decade-long property bubble burst left the country with one of the highest public deficits in the euro zone.
"We're talking about having a tax system that is comparable to those of countries that have the world's most competitive companies," Treasury Minister Cristobal Montoro said at a news conference on Friday where he announced the changes.
"In terms of revenue the tax system will be more equitable."
The previous and current governments have focused mostly on spending cuts to balance the books.
Spain's 2008 property crash practically wiped out revenue stemming from land development and real estate business, dragging tax income as a percentage of GDP to 36.4 percent from 41.1 percent in 2007. The drop of over 50 billion euros put the tax take far below the European Union average of 45.4 percent.
"The revenue loss is what is unique and particularly acute in the Spanish case because of the high dependence of government revenues on activity in the real estate sector," said Jose Manuel Campa, who was economy secretary under the previous Socialist government.
The tax measures announced on Friday are worth increased revenue of 800 million euros in 2013, the ministry spokesman told Reuters, correcting the figure of 1 billion euros given earlier by Montoro.
The measures include a 10 percent rise on the existing alcohol tax, which does not affect wine or beer and therefore covers only a small proportion of the alcohol bought in Spain each year.
The higher alcohol levy and a rise in the tax on tobacco will mean increased revenue of around 400 million euros a year, a spokesman for the Treasury Ministry said, correcting the Minister's previous estimate of 700 million euros.
Montoro said the government would limit corporate tax deductions for losses in foreign operations or investment portfolios.
The change to the tax rules on losses in companies' investment portfolios would bring in 578 million euros this year and 3.05 billion euros next year, the spokesman said.
A higher tax on fluorinated gases, used in refrigeration and air conditioning, would mean 700 million euros in additional revenue per year.
The European Union and International Monetary Fund have been pressuring Spain to reform its tax system, specifically eliminating a super-reduced value added tax rate of 4 percent and ditching a wide range of corporate and income tax deductions.
Economy Minister Luis de Guindos has denied that the government is considering raising sales tax on items that enjoy this very low rate, which is rare in Europe and includes such items as bread, milk and wheelchairs.
Moving these items into baskets which attract a higher rate could increase revenue by 8.7 billion euros according to estimates from Spanish think tank Fedea.
Spending cuts in government ministries, health, education and other areas have reduced the public deficit - not including one-offs - to 7 percent of gross domestic product in 2012 from 9 percent a year earlier but focus is now on how to increase tax revenue to shrink the deficit further.
"Spain still has a very high deficit. It needs to be reduced. The government's plan is mainly to focus on expenditure. We would see scope for a bit more reliance on revenue," said International Monetary Fund (IMF) mission head of Spain, James Daniel, on his most recent visit.
Prime Minister Mariano Rajoy raised VAT to 21 percent from 18 percent last year, but with many items falling under the super-reduced rate or the reduced rate of 10 percent, only 42 percent of Spanish goods are charged at full sales tax rate. That compares to 82 percent in Germany and 71 percent in France.
Attacks on fiscal fraud which have drawn in the likes of the King's son-in-law Inaki Urdangarin and Barcelona footballer Lionel Messi belie the fact that Spain's tax take is one of the lowest in Europe.
"The tax office has focused its efforts on high-profile cases, which provide headlines on their crackdown," head of tax-inspector union GESTHA, Jose Maria Mollinedo said. ($1 = 0.7691 euros)
(Additional reporting by Sonya Dowsett; Editing by Fiona Ortiz and Toby Chopra)