A SPECIAL levy for companies doing business in regulated sectors and an increase in a similar levy already imposed on banks have now become a reality in Slovakia. The Slovak Parliament adopted the relevant legislation as part of austerity measures set out by the government of Prime Minister Robert Fico, who wants to see companies with high profits contribute more to state coffers. The opposition and business circles have opposed the measures, calling then unsystematic and delivering only one-off effects. The temporary measures should raise approximately €312 million in tax revenues during the rest of 2012 and in 2013. The government promises that money collected in this way will be directed into a special non-budgetary account and will be used for government projects to support economic growth and employment.
Corporate levy
An extra monthly levy of 0.363 percent, or 4.356 percent per annum, on profits exceeding €3 million per year will affect companies at least 50 percent of whose total revenues come from regulated operations. The sectors in question include, most notably, energy, insurance, health insurance, electronic communications, postal services and transport. The measure should come into effect from the beginning of September and remain in force until the end of 2013. It should raise an additional €25 million by the end of 2012 and €100 million during 2013, the TASR newswire wrote after parliament adopted the legislation on July 26.
The government stated that the new levy would not result in an increase in the prices paid for goods and services by consumers.
“This levy will not be considered a cost eligible for inclusion in the regulated price, so the law will directly prohibit any increase in the regulated price,” stated the ministry, as quoted by the SITA newswire.
The Finance Ministry has said it does not know how many companies will be subject to the special levy, but one ministry official reportedly told the Hospodárske Noviny daily that the number was expected to be in the hundreds rather than the tens.
Firms fear the measure may end up being extended beyond 2013, while the opposition questions its timing and effectiveness.
“If only this temporary legislation does not turn into permanent [legislation],” Rastislav Machunka, president of the Federation of Employers’ Associations (AZZZ), told Hospodárske Noviny.
Ivan Štefanec, an MP for the opposition Slovak Democratic and Christian Union (SDKÚ), told the Pravda daily that the government is hastening to increase revenues, but is barely cutting spending.
“This is a one-off and unsystematic step,” Štefanec told Pravda. “If there is a problem with the regulation of regulated companies, then it is necessary to solve it directly and not via the introduction of such levies.”
The special levy will affect energy companies the most because their profits are the highest amongst regulated companies, Pravda wrote. It estimated that the state would profit most from the gas utility SPP, to the tune of about €6 million a month. The biggest telecom operators are expected to pay about €1 million each month.
Tomáš Dudáš from the Economic University in Bratislava warned that apart from endangering existing investments in Slovakia, there is a danger that the inflow of new investors will dry up because Slovakia’s image will suffer.
“This may make attracting new investors more complicated,” Dudáš told Pravda. He added that the treasury could ultimately suffer too, because companies will try to retain their profits, and will further optimise their income and expenditure in order to do so.
Upping the bank levy
Parliament also extended the basis on which banks in Slovakia pay an existing special levy. While banks have been paying the levy at a rate of 0.4 percent on corporate deposits since the start of 2012, they will have to pay it on private individuals’ deposits from September 1, 2012. The government expects the measure to bring in additional income of €27.5 million this year and an extra €110 million next year.
This is also designed to be a temporary measure and will end once banks have paid a total of €1 billion. The level of the levy is set to drop as the amount raised increases. The 0.4-percent rate of the bank levy will be halved once €500 million has been paid into the fund set up to receive it. Furthermore, a rate of 0.1 percent will apply once €750 million is deposited in the fund, the TASR newswire wrote.
The state will also collect another €50 million from banks via an additional deduction set to be put in place during the final quarter of 2012, which will amount to 0.1 percent of the extended basis for the bank levy. In compensation, banks will not have to pay their normal contributions to the Deposit Protection Fund between July 1, 2012, and December 31, 2013.
The Slovak Banking Association, which has campaigned against the special levy on banks, claims that its members will pay, on average, 55 percent of their profits in taxes and levies. It predicts that next year’s levy burden of €200 million will negatively affect banks’ capital, and thus also their ability to provide new loans, SITA wrote.
Banks’ aggregate profits fall
Banks in Slovakia generated aggregate after-tax profits of €274 million during the first half of 2012. Compared with the same period of 2011 this represents a drop of 36 percent, the Slovak Banking Association wrote on its website. It attributed the decrease to a fall in net interest revenues combined with the effects of the special levy on banks. During the first half of the year banks paid about €49 million via the special levy.
