Slovnaft refinery (source: Courtesy of Slovnaft)
The latest TAXparency report, entitled “Who Finances the State”, confirms that German companies substantially contribute to the stability of the Slovak state budget. In 2023, they paid approximately €700 million in corporate taxes in Slovakia. If social and health insurance contributions are added, the total amount rises to €1.63 billion. This has German companies occupying a leading position among foreign investors. They accounted for up to 24 percent of the total tax and levy revenues collected from the largest companies in Slovakia. They lag by 1 percentage point behind Slovak companies topping the ranking in this indicator.
“These results underline the strong and reliable representation of German investors in Slovakia,” Renáta Bláhová, partner at BMB Partners Taxand and specialist in international tax law, said when presenting the report on November 7. “High tax revenues from German companies are a sign of their long-term commitment and an important contribution to the Slovak state budget, especially in challenging economic times.”
In this context, the problems of the German economy and Volkswagen, whose arm in Slovakia ended as the biggest tax and levy payer for 2023, may also be a problem for the entire economy as well as the public finances of Slovakia.
300 companies
The report presents the top 200 biggest non-financial companies and the top 100 biggest financial companies in Slovakia for 2023. These firms reported total revenues of €103 billion, a rise of 1.07 percent compared to 2022. In total they and their employees paid €6.684 billion in income and payroll taxes in 2022.
This means a drop from €6.740 billion, when Bláhová attributed it to the fact that the Slovnaft refinery did not pay a so-called solidarity contribution – effectively, a windfall tax applied to oil, gas and coal companies – on the basis of an EU-wide mechanism for 2023 calculated at €180 million. A year earlier Slovnaft paid a contribution of €519.7 million.
The refinery claims in its 2023 financial statements that it has not met the criteria for claiming the solidarity contribution, and indicated that it would only pay €1.9 million in solidarity contribution when this is only an additional payment for 2022, the Sme daily wrote.
Unpaid solidarity contribution changed the ranking
While the solidarity contribution pushed Slovnaft up from 2022’s top position in the ranking of top 10 non-financial companies, as compiled by BMB Partners, in the 2023 ranking it ended third with aggregate taxes and levies of €679.57 million, a decrease of €484.71 million year on year.
The carmaker Volkswagen Slovakia returned to first position, with total taxes and levies paid of €278.50 million, up €30.42 million. It was followed by the second oldest carmaker in Slovakia, Kia Slovakia near Žilina. It reported total taxes and levies of €212.07 million, up €73.79 million. Slovnaft was third, the dominant electricity producer Slovenské Elektrárne ended fourth, and the steel producer US Steel Košice came fifth.
In total, the automotive industry paid taxes and levies of €971.16 million, followed by the financial sector with €925.05 million. Banks are in specific circumstances as they pay a bank levy. The Slovak Banking Association has calculated that the tax burden on banks has risen to 45 percent. The third was the energy and mining industry with €757.25 million.
Top 10 most important taxpayers from the non-financial sector |
|---|
1) VOLKSWAGEN SLOVAKIA, a.s. (EUR 279 mil.) |
2) Kia Slovakia s. r. o. (212) |
3) SLOVNAFT, a.s. (195) |
4) Slovenské elektrárne, a.s. (174) |
5) U. S. Steel Košice, s.r.o. (150) |
6) Železnice Slovenskej republiky (142) |
7) Schaeffler Slovensko, s.r.o., Kysucké Nové Mesto a Skalica (116) |
8) Slovak Telekom, a.s. consolidated (111) |
9) Lidl Slovenská republika, v.o.s. (109) |
10) Continental Matador Rubber, s.r.o. (109) |
Large companies to pay more in taxes next year
Big companies have to prepare to pay higher corporate taxes from next year. The Robert Fico government has increased, as one of public finance consolidation measures, the corporate tax rate from 21 percent to 24 percent for companies with taxable income above the €5 million threshold.
Based on Finstat portal data, there were more than 5,400 non-financial companies that have filed financial statements for the 2023 financial year and whose revenues exceed €5 million. These companies have paid a total of €2.57 billion in income tax. This is roughly 70 percent of the total tax revenue to be paid to the state by over 277,000 non-financial enterprises for 2023. These figures also show that the state relies on large companies for corporate tax revenue, the Pravda daily wrote.
Finstat has calculated that if the 24-percent tax rate were applied to the total tax base reported for 2023, non-financial businesses with revenues of over €5 million would pay income tax exceeding €2.9 billion.
“The state would thus receive roughly €368 million more,” said Finstat’s chief analyst Pavol Suďa as cited by Pravda.
On the contrary, the state will collect less from smaller companies.
“While the state has imposed a heavier tax burden on large companies, companies with taxable incomes of up to €100,000 will, on the contrary, be relieved. It will reduce their income tax rate from 21 percent or 15 percent to 10 percent. This applies to nearly 190,000 companies whose individual revenues in 2023 did not exceed €100,000, and which then paid a total of just over €167 million in income tax,” the Finstat’s analysis showed. If the new 10-percent rate were applied to their tax base, they would pay roughly 40 percent less in income tax to the state, i.e. less than €100 million.
The Council for Budget Responsibility (RRZ) has criticized the increase of corporate taxes, claiming that their increase is one of the measures that are relatively more detrimental to future economic growth. Indeed, high tax rates make the economy less competitive and one of the factors that may reduce economic growth in the future.
The fiscal council points out that the structure of the measures’ package put together by the Finance Ministry, led by Ladislav Kamenický (Smer), could have been better. But taking corrective measures is preferable to doing nothing.
“It is good that we have finally started to permanently improve public finances, because this will result in the risk premium on state loans not increasing so much, thus also making loans and investments more expensive for the private sector,” RRZ head Ján Tóth said during a meeting with journalists.
At the same time, Tóth indicated that the structure of the adopted package is not ideal. He perceived the first version presented by the government as better because it relied more on value added tax (VAT), a less harmful tax for the economy.
“By taxing business activity, whether through a much higher corporate tax or through transaction tax and sectoral taxes, it will mean that the economy will grow more slowly, our wages also growing slightly slower,” Tóth explained. He adds that the slower growth will reduce the effect of the current consolidation and require additional measures in the future.
