The Slovenia Times

Reform Proposal



The cabinet made some last-minute tweaks to the documents. While it stuck to its original proposal to replace the five tax brackets with three, it raised the top tax bracket (earning of above EUR 13,600 a year) for income tax by 2 percentage points to 41%. Moreover, it lowered the middle income tax bracket (between EUR 6,800 and EUR 13,600) by a percentage point to 27%. The lowest tax bracket (earning up to EUR 6,800) was left unchanged at 16%. The government also decided to add a new provision to the proposed corporate income tax law with which the tax rate would first be cut from 25% to 23% in 2007 and then fall by a percentage point a year until it hits 20% in 2010. In its original proposal, the rate was set at 23%. The Finance Ministry also said that the latest package included extensive measures to simplify tax procedures in the country by reducing red tape at all steps. Apart from the income tax and corporate income tax laws, the government also adopted changes to the VAT act, changes to the property tax act, changes to the tax procedure act, changes to the tax on inheritance and presents act and the changes to tax on vessels act. The government plans for the package to enter into force as of 1st January 2007. This would mean that parliament would have to pass the laws in November. Slovenia's largest trade union has welcomed the government's decision to raise the rate of the highest income tax bracket. The Association of Free Trade Unions of Slovenia (ZSSS) said that this was in line with its expectations and represented a guarantee that VAT rates would not be increased in the future. Meanwhile, the Chamber of Commerce and Industry has said that the introduction of a gradual reduction of the corporate income tax rate was welcome news but that the government still did not go far enough in alleviating the tax burden on businesses. In its opinion, the 20% corporate income tax rate should be implemented as of 2007. A respected authority in Slovenian finance has criticised the government for the many unknowns related to the tax reform it is proposing. "It is not smart to unveil a tax reform and say that you still don't know whether the VAT rate will have to be raised," Dusan Mramor told. According to Mramor, former finance minister and a lecturer at the Ljubljana Faculty of Economy, the government should have prepared a plan to make up for the drop in income tax revenues. This view has been echoed by the man who first advised the government to adopt a three-bracket model of income tax. According to Marko Kranjec of the Ljubljana Faculty of Administration, the state should "tell citizens, here, have more money, but also take care of yourself by incurring higher costs for health, schooling and pensions". Kranjec, who served as finance ministers in the 1990s, said that it was disappointing to see the debate around reforms stressing that taxes should be lowered while state-guaranteed welfare rights remain unchanged. The tax reform proposals could hardly be described as a "sweeping tax reform as it was heralded and we expected," according to Petra Mlakar, head of the Slovenian Association of Tax Consultants. The measures do bring changes to several tax brackets, yet its purpose lies in the simplification of tax procedures, Mlakar said. The reform will in her opinion not be complete until the ministry also reforms the system of social benefits, as they "present a large burden on employers."


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