A special accounting applied to a non-banking activity. Tax collection in the Bank of Spain (1867-1888)

Abstract

The direct tax collection by the Bank of Spain on a commission basis on behalf of the Royal Treasury was an atypical activity with regard to its banking business, but it achieved an extraordinary importance. To this object we dedicate the present paper.

By formalizing the contract in 1867, the Bank considered that it was subscribing a simple commitment as a commission agent and implemented a single entry bookkeeping. This was a wrong evaluation of the risks ad complexity of tax collection, understood as a marginal activity. Because the Bank had to create a complex infrastructure, contract personnel, elaborate an ad hoc regulation, etc., as well as to establish a new inspectors category.

The revolutionary political situation in 1868, with the setting-up of a new regime, the civil war in 1872 and the disorders of all type, caused that the tax collection activity was unfolded in some circumstances still more difficult. The economy was suffering the consequences of the financial and monetary crisis of 1866. They were reproduced in 1872, leading the country to a state of technical bankruptcy. The number of banking entities was reduced to the half, little more than thirty could survive. The end of the civil war in 1875 opened a period of greater political and economic quietness.

The Bank of Spain, thanks to its prudence and experience could overcome the crisis. It was converted to a central Bank in 1874, so that it returned to the position of financial supremacy, that was overshadowed by the reform of 1856. From that date, the Institution had to face a huge task of administration, management and coordination at the central offices, of creation of branches and of organization of the tax collection.

With the renewal of the contract in 1876 the service was reorganized. The Bank tried to integrate tax collection into the banking gears. Thus, a complex double entry bookkeeping was introduced, although due to some difficulties arisen it took some years up to its effective materialization. The risks were then measured and valued as the other ones of the Entity. The dimension of the tax collection service was impressive. However, the relations with the Royal Treasury were rather, since the Bank had to claim continually because of default balances.

In 1888 the second agreement expired and Public Treasury did not renew it in spite of the positive disposition of the Bank. This fact supposed the end of the active tax collection. However, after 20 years of service, the accounts liquidation with the Public Treasury took as long as to the beginning of the 20th century. Thanks all of that the Bank acquired an important knowledge in management and control of business of great volume and operative difficulty. It probably applied this knowledge to the development of the branches.