Government confirms tax changes

Ljubljana – The government confirmed on Monday a set of changes to five tax laws that for the most part reverse the tax cuts put in place by the previous government in a bid to shore up public finances and fashion a tax system that is more distributive.

The centrepiece of the package are amendments to the income tax act that will benefit those with the lowest income, while most others will get slightly higher take-home pay, albeit lower than they would if the current law remained in place.

The general personal income tax allowance that every taxpayer can claim will thus rise from EUR 4,500 at present to EUR 5,000 in 2023; under the existing law, it would gradually rise to EUR 7,500 through 2025.

This is coupled with a higher ceiling, rising from roughly EUR 13,700 to EUR 16,000, for various allowances combined, including for dependants, and an extra EUR 1,000 allowance for those under 29 years of age.

For those in the top income tax bracket with earnings in excess of EUR 74,000, the tax rate, which was reduced from 50% to 45% this year, will go back to 50%.

Notably, the bill eliminates the automatic indexation of tax brackets to inflation and introduces a system under which tax brackets will increase by a much slower rate, at half the annual wage increase, starting in 2024.

Another major change is the return of the taxation of rental income to 25% from 15%.

Significant changes are also planned for the taxation of sole traders, amidst complaints that the current system is too generous and is being widely abused to minimise taxes.

The existing flat-rate system under which sole traders who make up to 100,000 per year pay only a 4% income tax will be severely curtailed.

The lowest rate will apply only to income below EUR 35,000, any income above that will ba taxed at a 12% rate.

The government wanted to originally set the limit even lower, at EUR 25,000, but tweaked the bill after outcry from business associations.

These thresholds only apply to sole traders taking advantage of the simplified flat-rate system, for those who pay taxes based on their actual income and expenditure nothing will change.

The proposal also includes an overhaul of the system of excise duties for farmers.

Under the current system, farmers can reclaim 70% of excise on diesel that they bought in the year before, the new system introduces a special type of “agricultural diesel” that will be dyed just like heating oil is now.

Farmers who buy at least 540 litres of diesel for farming or 150 litres for forestry will buy this special diesel at a reduced price on which only 24% of the normal excise duty on diesel will be levied.

There are also several administrative changes planned, most notably a return of mandatory receipts at cash registers that were discontinued this year but which the new government says has resulted in an expansion of the informal economy.

Some parts of the package have been agreed with social parters, but income tax changes in particular have been challenged by businesses associations, which have called on the government to abandon the plan and embark on a more comprehensive tax reform next year.