SLOVAKS could find themselves paying all their taxes and their insurance fund dues to a single institution after 2009 if the country's next government follows through on a tax collection plan tabled by the ministries of finance and labour.
The Finance Ministry has proposed that as of August 2009, Slovakia's tax bureaus will collect both income taxes and compulsory payments to the country's social and insurance funds. The latter, known as "payroll taxes", are now collected by the Sociálna poisťovňa social insurer.
The ministries believe that the collection of income tax and compulsory transfers by a single institution would benefit citizens and the business community, as well as the state.
Moving payment collection under one roof would save public funds and reduce bureaucracy, say the authors of the idea.
"The essence of the proposal is that it makes the collection of payroll taxes cheaper and more comfortable," Labour Ministry spokesman Martin Danko told The Slovak Spectator.
"The tax offices have all the tools they need to claim these dues as well as overdue payments," Danko said.
The Labour Ministry stressed that the reform did not propose to reduce the payroll tax burden, which includes a 35 percent surcharge for employers on salaries paid, and 13 percent surcharge on gross income for employees.
Foreign and Slovak businesses have urged the government to cut payroll taxes and thereby reduce labour costs, saying it would give them an incentive to hire and reduce unemployment in Slovakia.
However, Labour Minister Iveta Radičová told The Slovak Spectator that if the country wishes to maintain its current level of social services, including unemployment insurance, pensions and free health care, it cannot afford to cut the dues.
"The change we are proposing only affects the technical aspects of payroll tax collection, it does not pertain to the payroll tax rate, which is a very sensitive topic," Danko explained.
"This reform merely introduces a new method of tax collection."
The business community has welcomed the unification of tax collection, saying any reduction of bureaucracy is good news, even if it doesn't lead to a cut in the tax burden itself.
According to the Slovak Business Alliance, unified tax forms, a centralized database and electronic communication will reduce red tape in Slovakia, which has been identified as one of the barriers to doing business here.
The country's tax directorate, which will play a crucial role in the reform, is enthusiastic about the transfer of payroll tax collection under its wing, as the new system will allow arrears to be claimed through a single institution.
"The tax directorate is part of the process and we view these changes positively," central tax authority spokesman Robert Merva told The Slovak Spectator.
"Transferring tax collection will improve communication with citizens and the tax collection process itself. Slovakia's tax administration is very efficient in collecting taxes, and we could provide know-how for the collection of compulsory transfers as well," Merva said.
Merva stressed that the ministries had taken only the first step in the reform, and that extensive changes to legislation would eventually be required, while the state would have to analyze which of the current functions can be merged and what new functions the state will have to develop.
The reform should also result in a single payroll tax instead of the current three separate payroll payments (health insurance, unemployment insurance and pension insurance), while the calculation and payment of these dues would be very similar to those for income taxes.
According to Merva, Slovakia will draw inspiration from central revenue agencies in other countries that collect all payments to the state.
The fly in the ointment is that general elections are only four months away, and the next government will not be bound to follow through on the change.
However, no political party has expressed opposition to the proposed system so far, and even the opposition Smer, the toughest critic of the Dzurinda government's tax policies, has not questioned the rationale of the plan.
Experts say the basic conditions for the unification of tax and payroll tax collection is a high-quality tax administration system and well-prepared participating institutions.
According to Danko, the Finance Ministry document will now be expanded and submitted to other ministries for comment.
"Since there are only four months left until the end of the election term, the current cabinet will only have time to do a detailed analysis of how the process should go. By the end of the summer, the new government should specify what laws are needed for the reform," Danko said.
