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MPs vote to abolish Slovakia’s flat tax

Slovakia’s parliament has approved a bill which will change tax rates for individuals and companies, and which will in the process end the country’s once-celebrated flat-tax system, the TASR newswire reported. The governing Smer party argues that the measures will help to squeeze the budget deficit under 3 percent of GDP next year, but the opposition is warning that the changes will have a negative impact.

Slovakia’s parliament has approved a bill which will change tax rates for individuals and companies, and which will in the process end the country’s once-celebrated flat-tax system, the TASR newswire reported. The governing Smer party argues that the measures will help to squeeze the budget deficit under 3 percent of GDP next year, but the opposition is warning that the changes will have a negative impact.

Based on the new rules, corporate income tax will go up from 19 to 23 percent as of January 2013, while people earning more than €3,246 per month will have their income tax rise from 19 percent to 25 percent. For other earners, the rate will remain at 19 percent.

“We believe that we have the right to expect that those earning €3,300 or more per month will contribute to the consolidation of the public finances by paying higher income tax,” Prime Minister Robert Fico said, as quoted by TASR.

A special, additional 5-percent income-tax rate will apply to selected constitutional officials such as MPs, government members and the president. Moreover, a cap on the 40-percent, lump-sum, tax-deductible expenditures was also introduced, with the upper limit projected to stand at €5,040 per year, or €420 per month.

The Finance Ministry expects the measures to yield €376.6 million, equivalent to 0.51 percent of GDP, to state coffers next year. Further revenue gains are expected in the years ahead: €415.9 million in 2014, and €445.2 million in 2015, TASR wrote.

The opposition parties which are united in the People’s Platform, the Slovak Democratic and Christian Union (SDKÚ), the Christian Democratic Movement (KDH) and Most-Híd, criticised the abolition of the flat tax and promised to reintroduce it if they receive enough support in the next general election and form a government, TASR wrote.

The leader of the SDKÚ, Pavol Frešo, called the new bill a “political gamble”, adding that the grey economy would flourish on the back of the measure.

“Tax collection will be lower, so they will keep increasing the rate,” Frešo predicted, as quoted by TASR.

Béla Bugár, leader of Most-Híd, added that Smer is sending out two messages by passing the measures.

“By increasing taxes it is sending out a signal to people that it does not pay to work and pay taxes and levies in Slovakia. It is also sending out a signal to investors that it does not pay to invest here,” Bugár stressed.

According to KDH chairman Ján Figeľ not only will well-to-do individuals and large companies be affected, but also firms with profits of €1. This will trigger price increases and reductions in jobs, and “the price hikes will affect everybody”, he said.

Source: TASR

Compiled by Radka Minarechová from press reports
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