January 29, 2019 / 5:14 PM / 6 months ago

UPDATE 1-EU flags doubts over Spanish tech tax revenues

* Government expects 1.2 bln euros annual revenue from tax

* Draft budget contemplates deficit cut to 1.3 pct/GDP

* Fiscal watchdog sees digital tax revenue of 137 mln euros (Adds Spanish fiscal monitoring body's estimates)

BRUSSELS/MADRID, Jan 29 (Reuters) - A planned digital tax may not raise as much as Spain estimates, the European Commission warned on Tuesday, fuelling doubts over Madrid's ability to meet its deficit targets this year.

Spain's own fiscal watchdog has already raised concerns about the tax, one of the measures Madrid wants to deploy to raise revenues and bring its deficit down to 1.3 percent of gross domestic product from 2.7 percent last year.

The government approved a draft law that would tax large firms 3 percent of their digital turnover, adding an estimated 1.2 billion euros ($1.3 billion) to state coffers each year.

Spain brought in the tax this month after the failure of talks on an EU-wide levy on firms like Google and Facebook which are accused of paying too little by routing their profits to low-tax states in the bloc.

But the European Commission, which is responsible for keeping the budgets of EU countries in check, said the Spanish tax may not be as lucrative as predicted.

Other EU states, including Italy and France who championed the EU levy, have introduced their own national taxes which would kick in if no deal is reached in Brussels before summer.

Talks on the matter are expected to resume in coming weeks at EU level, but on a tax with a smaller scope.

REVENUE DOUBTS

Commission Vice President Valdis Dombrovskis and Economics Commissioner Pierre Moscovici wrote to the Spanish government voicing doubts about its "estimated revenue-raising capacity".

In the letter, dated Jan. 28, the commissioners repeated that there were risks Spain would not meet its deficit target and may not be compliant with EU fiscal rules.

Spain's central bank on Monday predicted the budget deficit could be as high as 2 percent of GDP this year, much higher than the government's target..

The Spanish economy ministry and budget ministry declined to comment on Tuesday.

However, Jose Luis Escriva, head of the country's fiscal watchdog Airef, told Congress that by its calculations the tax would bring in just over one-tenth of the revenues the government estimated for this year.

Airef's projection is that the tax would only start working in the last quarter of 2019 after the whole process of parliamentary approval is completed, so the revenue will barely exceed 137 million euros.

The administration, Airef said, simply projected revenues from the tax for the whole year. ($1 = 0.8757 euros) (Reporting by Francesco Guarascio in Brussels and Belen Carreno in Madrid Editing by Andrei Khalip and Alexander Smith)

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