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Higher taxes could be trouble, analysts warn

THE INCREASE in some excise duties scheduled to begin in July will reduce domestic demand, fuelling more activity in the black economy and decreasing the standard of living for people earning an average monthly wage or less, analysts say.
"The changes to indirect taxes will increase consumer prices and preserve the low living standard of the majority of the population," Pavol Kárász, analyst at the Institute for Slovak and World Economy at the Slovak Academy of Sciences, told the SITA news agency.
The price of one half-litre bottle of beer will rise by Sk1 (€0.02). Smokers will pay Sk9 (€0.22) more per packet of cigarettes after the increase, and motor fuels will rise by Sk2-3.50 (€0.05-0.08) per litre. The cabinet expects the higher excise taxes to bring Sk3.7 billion (€89 million) into the state budget this year.

THE INCREASE in some excise duties scheduled to begin in July will reduce domestic demand, fuelling more activity in the black economy and decreasing the standard of living for people earning an average monthly wage or less, analysts say.

"The changes to indirect taxes will increase consumer prices and preserve the low living standard of the majority of the population," Pavol Kárász, analyst at the Institute for Slovak and World Economy at the Slovak Academy of Sciences, told the SITA news agency.

The price of one half-litre bottle of beer will rise by Sk1 (€0.02). Smokers will pay Sk9 (€0.22) more per packet of cigarettes after the increase, and motor fuels will rise by Sk2-3.50 (€0.05-0.08) per litre. The cabinet expects the higher excise taxes to bring Sk3.7 billion (€89 million) into the state budget this year.

Many Slovaks, and especially pensioners, will try to find the extra money to pay for the more-expensive daily goods by cutting back on consumption of services, education, and goods for long-term use, Kárász said.

The planned increase in excise taxes may even destroy some producers of the goods to be taxed, he said, adding that the positive effects of the tax reforms on Slovak companies are not expected to be felt for three to six years.

According to Kárász, in times of need, Slovaks usually switch to self-supplying rather than protesting. He suggested that the Finance Ministry should make public their calculations on tax reform, and involve a wide variety of professionals in the process regardless of their political orientation. This would help keep the ministry grounded in reality, he said.

According to Jozef Luteran, head of the institute for customs offenses at the Customs Directorate, the planned increase in excise taxes on tobacco products will boost the smuggling of cigarettes to Slovakia, since the price of tobacco will approach those in the European Union.

Smugglers have so far used Slovakia mainly as a transit country, but because of the perceived risks associated with the increase in excise taxes, including heavier workloads for customs officers, the customs directorate should have been consulted, Luteran said.

He also suggested that the responsibilities of the customs offices should be revised, since at the moment, the body is involved with inappropriate tasks, many of which slow down its more important work. He estimates that up to 800 million cigarettes per year may be smuggled into Slovakia, with annual losses of excise duty on those cigarettes reaching about Sk1.1 billion (€26.7 million).

- From press reports

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