Taxes rarely get good publicity. So when the Slovak parliament passed a new law lowering the value added tax (VAT) rate at its most recent session, it garnered about as much attention as a new sand dune in the Sahara.
But the business and financial world can hail the new VAT law as a tidbit of good news. The legislation drops the standard VAT from its current 25 percent rate to 23 percent, and moves additional items - including recreational accommodations, food services and soft drinks - into the six percent discount bracket normally reserved for staple goods.
"It's a good step in the right direction," said Leonard Mullender, a counsellor at the European Commission in Bratislava for EU integration. In fact, according to Mullender, it's also a step towards EU integration. The Union's Sixth VAT Directive, which is an attempt to harmonize VAT among member states, lists a standard rate of 15 percent and a reduced rate of 5 percent as ideal.
"The EC would like of course if members states tended to achieve only these two rates," Mullender said. "With their VAT, Slovakia conforms with the Sixth VAT Directive, because they are just over the reduced rate of five percent, which is allowed."
The 23 percent rate is acceptable, too, Mullender explained, especially considering that some countries, such as Denmark, have VATs ranging as high as 33 percent for luxury items. That acceptance should make the government happy. As Jozef Mach, the spokesman for the Ministry of Finance, said, "we are trying to get in line with Western Europe, and to get more commodities under the six or even five percent rate."
The fact that Slovakia collected 45 billion Sk in VAT in the first ten months of 1995 - well beyond the 43.2 billion Sk estimated for the year - made it easy for the government to take the plunge. Finance Minister Sergej Kozlík announced that without any increase in turnover, VAT revenues are likely to drop by 2 to 3 billion Sk in 1996. But, he added, turnover is likely to rise. In addition, Mach said, the ministry hopes that the new law, which simplifies the heavily amended 1993 measure, will make for a rosy economy.
"We hope that businesses will lower their prices," he said, "and we hope that the purchasing power of the population will increase, GDP will rise and all the macroeconomic indicators will improve." But no one's going overboard. While there may be changes in what items fall under the 23 or six percent listings, Mach explained, the government has no plans to decrease VAT in the near future.
23. Nov 1995 at 0:00 | Hannah Wolfson