ANY KIND of reform tends to please one group while making others nervous. After the government presented a limited peek at the changes it is considering making to Slovakia’s ways of calculating income taxes and mandatory payroll taxes, those who are classified as employees are more hopeful of a boost in monthly take-home pay, while the self-employed are alarmed about what they perceive as a potentially much heavier tax burden.
An expert quickly pointed out that higher taxes on the self-employed and those working under Slovakia’s system of one-off contracts might damage flexibility in the labour market and suggested that the government should first exact more severe cuts in state spending rather than taxing any kind of labour more heavily.
The Iveta Radičová government said it is being driven by its goal of developing a unified system for collection of income taxes, customs duties and mandatory payroll taxes. The prime minister said that this would simplify the overall system and ease some of the administrative burdens on employees as well as employers.
The government stated that there are significant differences in the current methods used to calculate taxes on those who are considered regular employees of businesses as opposed to those who are self-employed.
that an average employee generates about €5,200 in annual taxes while those who are self-employed pay an average of €1,700. The government said its proposed changes will address this imbalance.
Almost 230,000 self-employed people may see their net income drop based on the details released thus far, in particular a proposed increase in the calculation base for mandatory payroll taxes, as well as an effective increase in the base for payment of income tax. The latter would rise as the self-employed would no longer be able to deduct from their gross earnings what they pay as mandatory
contributions to Slovakia’s social insurer, Sociálna Poisťovňa, and to health insurers, the SITA newswire wrote.
Another of the proposed changes is a so-called super-gross wage for those who are employees, meaning that employees’ gross income will be increased by the sum that is transferred to the social insurer and to the health insurer by the employer.
“A one-time positive is the installation of the super-gross wage which will make financial relations between the citizens and the state more transparent,” Radovan Ďurana of the INESS economic think tank told The Slovak Spectator. “We are also positive about the efforts to increase the net income of low-income employees. Nevertheless, we negatively assess this increase in income [for lowincome employees] being covered by heavier taxing of self-employed and contract workers.”
Ďurana said he expected such a change would decrease flexibility in the labour market and have a negative impact on employment growth.
“We think that the government should be reducing the payroll tax burden of employees and not increasing it flatly to other groups,” said Ďurana. “A reasonable solution would be to install a ceiling for annual income from [contract] agreements.”
He said that reducing payroll taxes for those who are traditional employees should be financed through additional cuts in public spending.
Viola Kromerová of Slovenský Živnostenský Zväz (SŽZ), which represents self-employed trade and craft workers, said her organisation in no way agrees with the statement of the government that those who are self-employed are benefitting at the expense of employees.
“Why isn’t it so then that employees are paying the expenses of people for whom the state is paying the payroll taxes?,” asked Kromerová.
Kromerová suggested that the state should publish a detailed analysis which would show who is taking how much from the system.
“We think it is necessary to tell the whole truth,” Kromerová told The Slovak Spectator. “Certainly, the self-employed are drawing the least from the social insurer and the health-care system.” Kromerová said that at this point her organisation is looking at the proposal with great concern even though it has not yet been stated by the government what it will use as the basis for payroll taxes on those who are self-employed.
“In no way do we agree that the selfemployed are comparable with an employee and it does not workthis way in any state,” Kromerová said. “The self-employed must be clearly looked at as an employer and employee at the same time.”
Kromerová stated that self-employed persons, in their role also as an employer, guarantee their businesses with their own property and often the whole family’s property. She said that self-employed persons must secure orders, material, equipment and technology while being responsible for both themselves and any employees they may have.
“They often struggle to keep afloat in the market,” Kromerová said.
Most importantly those who are selfemployed are potential employers, according to Kromerová.
Actual numbers are elusive
Radičová stated that the increase in payroll taxes for self-employed persons would not nearly reach the payroll tax burden of regular employees who have the same type of position and the same earnings.
“We do not want to burden those who belong to the group with lower incomes or to the group of employees,” Radičová said, as quoted by TASR.
It appears that there is already an intense debate within the four parties of the coalition government over the potential changes, with Most-Híd and the Christian Democratic Movement (KDH) already expressing some reservations.
“If the result is that they [self-employed persons] go to register at the labour office, this is what we do not want to achieve with the changes,” said KDH deputy Július Brocka, as quoted by Sme.
Meanwhile, Finance Minister Ivan Mikloš floated the idea of a tax bonus for those who are self-employed while also floating another proposal to assess a lower percentage rate for social insurance payments for those who are selfemployed, at 13 percent rather than the current 16 percent, Sme wrote.
The government insisted that its main goal is to tune the country’s system so as to make it easier to initiate its future system of unified collection of income taxes, mandatory payroll taxes and customs taxes.
“Unified collection of taxes and levies is a commendable goal but one should not get the impression that it is possible only when self-employed, contract workers and employees are paying the same rates from the same calculation basis,” Ďurana said.
He said optimising on part of the state is already possible without any further reform of the payroll tax system.
“The installation of the super-gross wage and unification of the place of collection will at the same time reduce bureaucracy, which [both] employees and self-employed face,” Ďurana said.
Ďurana added that installing quite extensive technical changes to achieve unification of tax collection without proposing a plausible reduction in the payroll tax burden is in fact wasting a chance.
“The goal of the reform should be easing the burden on labour, any labour,” he said. ”It is one of the few tools through which the government could support the growth of employment.”
14. Mar 2011 at 0:00 | Beata Balogová