BILLIONAIRE publisher Steve Forbes praised flat tax plans, but not higher VAT.
Forbes, who based his 1996 and 2000 presidential campaign platforms on introducing flat-rate income tax in the US, made the comments at a July 11 lunch organised by the American Chamber of Commerce in Slovakia and the FA Hayek Foundation, which supports economic liberalism.
"[Because of the flat-rate income tax] Slovakia is becoming a model for other countries in the region," said Forbes at the meeting.
"All of Europe needs to follow the example of Slovakia," he said.
Forbes comments came a day after the Slovak parliament overturned President Rudolf Schuster's vetoes of a number of tax reform proposals, including measures to raise excise tax on mineral oils and establish a single value-added tax (VAT) rate of 19 percent.
Finance Minister Ivan Mikloš plans to implement the new VAT, which lowers rates on some goods from 20 percent, but raises taxes on food, drugs, energy, books and other publications, construction, and some services from 14 percent, in August.
According to Mikloš, VAT must be raised this year to strengthen the state budget ahead of the planned introduction of a 19-percent flat-rate income tax, which should be introduced from January 2004. Without the new VAT rate and the excise tax boost, implementing the income tax reform would not be possible, said Mikloš.
Backers of the tax plan say that the flat-rate proposal would significantly lower income tax burdens on businesses and lead to a rapid increase in local and foreign direct investment in Slovakia.
According to the Slovak Business Alliance (PAS), a group of Slovak companies with combined annual sales of Sk130 billion (€3.1 billion) and employing 40,000, the plan would reduce the tax rate for businesses by at least 6 percent while removing double taxation and simplifying accounting procedures.
"The experience from Estonia and Russia, which have already introduced flat-rate income taxes, shows that [the plan] has the potential to boost the economic growth of a country and stimulate local and foreign investors," said PAS executive committee member Milan Kisztner to the SITA news agency in late June.
The tax reform plans are not without opponents, however. Slovakia's two strongest opposition parties, the left-wing Smer party and the Movement for a Democratic Slovakia (HZDS) of authoritarian former prime minister Vladimír Mečiar, have both spoken out against the plan, saying it will raise tax burdens and reduce living standards for the country's poorest inhabitants.
Before parliament was able to overturn Schuster's veto on the single rate VAT, that measure was also the target of much criticism from opposition politicians as well as some business leaders.
According to Peter Mihók, chairman of the Slovak Chamber of Commerce and Industry, the group supports the planned income tax changes, but sees increasing excise taxes and VAT in mid-year as irresponsible fiscal policy.
"We are against changing the [tax] rules during the year. It is an absolutely non-systemic measure that runs counter to the interests of the economy," said Mihók to journalists after discussing tax reform with Schuster on July 7.
On his visit Forbes also spoke out against increasing Slovakia's VAT rate, particularly on press, saying that the main objective of tax reform should be raising citizens' living standards and creating opportunities rather than filling state coffers.
Nevertheless, he said, the proposed tax reform is a bold step that, if implemented, would give the country one of the most attractive tax systems for investors in Europe, and catapult Slovakia's economy past its Visegrad Four neighbours, which have traditionally enjoyed higher levels of investment and growth.
"Tax on wages is a fee for working; tax on profits is a fee for the success of your firm; tax on capital gains is a fee for undertaking risks on the capital market. The lower these fees are, the more willing people will be to work, do business, and undertake risks," said Forbes.
"[Slovakia] has the best geographical location - all of Europe is around [the country], and moreover, it will have the best tax system. I think that Slovakia is going through what happened a few years ago in Ireland - that by degrees it is changing from one of the poorest countries to one of the economically strongest," he said.
21. Jul 2003 at 0:00 | Dewey Smolka