It is the “paradox of effort”. This is how Marta Alcega, a member of the Professional Association of Tax Technicians of Catalonia and the Balearic Islands (APttCB), summarizes it. In the income tax return, a self-employed person with an annual income of 10,000 euros faces a tax bill of 558 euros in the personal income tax settlement, while an employee with the same income pays nothing.
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“It is the paradox of effort. A worker earning 10,000 euros a year is considered someone who cannot subsist, which is why the system protects them with reductions. The entrepreneur, on the other hand, is treated as someone with economic capacity who has to contribute more than 500 euros to the State. The system punishes the generation of economic activity in the lowest income brackets,” the tax expert emphasized during an APttCB presentation this Tuesday. The scenario is for a single person, without children, residing in Catalonia. The situation is repeated in higher income brackets.
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This is due to the differences in the reductions that can be applied to each. For low-income employees, there is a legal reduction for obtaining employment income, which has been strengthened this year to match the SMI (up to 7,302 euros). This means that if they earn 10,000 euros, their final taxable base remains below the 5,550 euros personal minimum, so their tax is zero. The reductions for employees “erase or minimize the entire taxable base. In fact, if anything had been withheld from their payroll, the Tax Agency should return it in full,” she explains. The reduction has been strengthened this year to match the SMI.
In a similar situation, for the Tax Agency, the self-employed person does not have a salary, but rather 10,000 euros of income from economic activities. The reduction for employment income cannot be applied, while they can only deduct their expenses and 5% for “expenses difficult to justify,” as well as some other minor reduction of about 1,620 euros.
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As a result, in a general example, the self-employed person’s taxable base would be 8,487 euros. This far exceeds the personal minimum of 5,550 euros, so they will have to pay taxes on the difference between the two, i.e., 2,937 euros. This minimum has been frozen for 11 years, which is why the APttCB has requested its update and increase. During this period, inflation has climbed 40%, meaning that what are actually basic needs are taxed as disposable income. Given these figures, Alcega points out that the system for the self-employed “is much more severe,” and there is “a lack of protection.”
“An employee with 10,000 euros does not pay personal income tax, while a self-employed person with the same income can end up paying around 500 euros. It is a difficult situation to explain and socially not very understandable,” emphasized the president of the APttCB, Joan Torres Torres.
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