FIGEĽ (right) won multiple tax transition periods.
Following 15 months of negotiations Slovakia closed the taxation chapter in the acquis communautaire - a pre-accession legal harmonisation document - on March 21.
Ján Figeľ, Slovakia's chief negotiator for EU entry, announced that the country had been granted several transition periods on taxes, guaranteeing lower tax rates on gas, electricity, and distilled spirits for a number of years after entry into the Union.
Transition periods are postponements granted by the Union to candidate countries in the adoption of EU laws and regulations following entry.
Small and medium-sized businessmen with annual turnovers of less than 35,000 euros will be permanently exempt from value-added tax (VAT) payments, while lower VAT rates than in existing EU countries - 10 per cent rather than 23 per cent - will be allowed on construction work, heat and energy for households for periods of four, five and one year respectively after Slovakia enters the EU.
A five-year transition period for adopting the full EU excise rate of 57 per cent on cigarettes, and also for the adoption of a new additional tax of 64 euros per 1,000 cigarettes, was also granted.
"This was a difficult chapter, maybe not the most difficult, but one of them. It took us 15 months to negotiate but in the end we got what we wanted and what we asked for," Figeľ told The Slovak Spectator.
The transition periods mean that there will be no immediate dramatic rise in the Slovak cost of living after entry to the Union. Importantly, the cost of gas, electricity and heating will stay far lower than in present EU member states.
"The transition periods have an enormous economic and social impact. Small businesses will benefit, and most importantly we have managed to keep VAT payments on gas, electricity and heating at lower levels. The cost of living will not be as high as it could have been had these concessions not been negotiated," Figeľ said.
The success in the negotiations also gives hope to a number of Slovak spirit makers, particularly manufacturers of traditional Slovak plum brandy, slivovica, who had warned of forced collapse had they not won concessions on taxes.
There will be a permanent exemption on 50 per cent excise tax for fruit distillers producing 30 litres or less of fruit distillate annually. Volumes above this limit will be taxed at 100 per cent.
"Some distillers could have gone out of business had we not got this, so that was important. It also showed that we do not have to give up our tradition and cancel parts of our past because of the EU," Figeľ added.
Many economists said that the closing of another chapter, rather than the specifics of the deals on taxation, was the more important achievement.
"The major benefit of this is that it's another chapter closed. Any chapter closed is a success and it shows the people watching the market that we're on the train and it's moving forward," said Tomáš Kmeť, analyst at Slovenská sporitelňa bank.
He added that investors had and would continue to closely follow the closure of all pre-entry legislation chapters and Slovakia's overall progress towards EU entry.
Closure of the tax chapter brings the number of acquis communautaire chapters closed to 23 out of 29. The government is confident of finishing negotiations on the remaining six before the end of this year, when the EU is expected to issue invitations to a number of states to join the current 15-member bloc in 2004.
However, Figeľ warned that the six chapters still left to close - transport, interior and justice, regional policy, economic competition, budget regulation and agriculture - would be among the most difficult to negotiate.
"The tax chapter was difficult but some of the most difficult ones, such as agriculture, are still ahead of us," he said.
1. Apr 2002 at 0:00 | Ed Holt