The Slovenian cabinet adopted on Thursday, 14 September a package of legislation that makes up its recently-unveiled tax reform, the main aim of which is to simplify tax procedures and lower the tax burden on businesses
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%.
Finance Minister Andrej Bajuk said the decision to tweak the tax brackets was taken by the government on the basis of the proposals it got from interested parties.
The general tax relief (which all taxpayers are entitled to) will increase by 11% to EUR 2,800. All other types of relief except for children and the disabled have been eliminated.
Bajuk reiterated that revenues from personal income tax would be SIT 35bn (EUR 145.5m) lower per year as a result of the changes. He said the shortfall would be offset through lower public spending and higher economic growth. If this is not enough VAT will have to be increased.
Meanwhile, Finance Ministry State Secretary Andrej Sircelj said that the proposal ensures that no taxpayer will be worse off than under the current legislation.
As far as its decision to introduce further cuts in corporate income tax, albeit gradual, Bajuk said the measure was aimed at showing that the government was serious about promoting enterprise and foreign investment.
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.
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 in Thursday's press statement 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.
The government plans for the package to enter into force as of 1 January 2007. This would mean that parliament would have to pass the laws in November.
Author: STA, Slovenian National Press Agency