TAXPAYERS will pay more in taxes as of next year even though basic rates for income and corporate taxes remain unchanged. Prime Minister Robert Fico’s Smer majority in parliament pushed through an extensive revision to the income tax laws on October 30. While the cabinet cites consolidation of public finances and closing legal loopholes as the motivation for the changes, the opposition calls them a covert tax hike and say they will challenge the moves with the Constitutional Court.
The approved changes should bring the state additional revenues of nearly €860 million during the next three years, of which €265 million should come in 2015.
“It is the same, when we calculate it into the income tax, as if the cabinet increased the corporate tax from 22 percent to 25 percent,” said Jozef Kollár, an independent MP, as cited by the SITA newswire. He added that when keeping the value added tax at 20 percent instead of its planned decrease to 19 percent is added, the state secures total additional revenues of €1.5 billion over the next three years.
Finance Minister Peter Kažimír denies the government is increasing the tax burden on businesses.
“When we collect more from any tax, this does not mean that we are increasing the tax burden,” said Kažimír, as cited by the TASR newswire. “We are endeavouring for a fairer distribution of this burden. We are living in an environment where it is a habit to avoid tax laws.”
Kažimír further objected to the accusations that the changes would pull an additional €265 million from businesses next year.
“I have to object to such statements from opposition deputies,” Kažimír said. “Those €265 million, which are planned for the budget come … from better collection of taxes and better effectiveness. We fight against tax evasions and tax avoidance.”
According to Kažimír, higher revenues would mostly come from measures not affecting small and medium-sized companies but large companies or financial institutions and this way the government is on the way to a balanced state budget.
The most important tax change is in depreciation. As depreciation reduces the tax base and thus the final tax paid, a longer period of depreciation means higher taxes paid. The revision increases the number of depreciation groups from four to six, shortens depreciation of production technologies from 12 to eight years and prolongs depreciation of non-productive real estate from 20 to 40 years. It is expected that the latter measure would affect developers and hoteliers most. It has become the target of the biggest criticism by the opposition as it will apply also to assets which businesses acquired before January 1, 2015 when the new rules will enter force. It is the retroactive nature of the changes that Kollár wants to challenge.
“I want to collect 30 signatures from opposition deputies and file a motion with the Constitutional Court,” Kollár said.
The revision also caps the price of motor vehicles that business entities buy to do business, thus affecting depreciation. While currently there are no limits, the revision introduces a limit of €48,000 for business entities with a low tax base.
Jana Kiššová, deputy of the opposition Freedom and Solidarity party (SaS), sees this as an introduction of different rules for state officials and those in the private sector. The opposition proposed to set this cap also for the state administration but it was rejected.
In another change the revision obliges physicians, hoteliers or notaries to issue receipts by cash registers for services provided and paid. So far even though they have been obliged to issue receipts, they have been exempt from the duty to do it via cash registers. By this measure the cabinet wants to curb accepted but not registered payments. Those with between 300-1,000 receipts monthly do not need to buy cash registers, they will be able to use free virtual cash registers available at the Financial Administration.
In the end the revision did not introduce a proposed 80-percent depreciation cap on assets which a business person can also use privately. It introduces a possibility to choose between flat expenditures of 80 percent in case the asset is used also for private purposes or provable expenditures depending on the real usage of this asset for private purpose and doing business.
Parliament also adopted some amendments proposed by opposition deputies mitigating impacts of the revision on business entities or improving the business environment.
PM Miroslav Beblavý succeeded with a proposal that the tax administration publish data about companies employing the higher deduction of R&D costs. The revision increases the support for R&D by the possibility to deduct from the tax base 25 percent of costs spent on R&D. The aim of Beblavý’s proposal is to create conditions for simpler uncovering of the abuse of higher deductions.
Daniel Lipšic of Nova succeeded with a proposal to exempt the reward a whistle blower receives for exposing anti-social activity from taxation.
But in general the opposition evaluates the adopted changes negatively and as significantly complicating the existing tax system.
“Tax changes should be done by a lancet and not by a hammer as Peter Kažimír does them,” said Kollár.
