Although details have not yet been finalised, officials are planning to cut income and corporate tax rates, while broadening the tax based by removing exemptions.
The country hopes to increase its tax take without choking off its fragile recovery. While it exited recession late last year, it still has high levels of debt and unemployment. The tax take has fallen almost €50bn since the downturn started six years ago, putting total revenue at 36.4 per cent of gross domestic product in 2012, nearly 10 percentage points below the European Union average.
Officials expect the reforms to be passed by parliament by the summer, ready to come into force next year before the next general election.
Prime Minister Mariano Rajoy’s plans are likely to be popular with voters and the right wing of his People’s Party, who have been unhappy that he hiked VAT rates and income taxes during the first two years of his four-year mandate.