BRATISLAVA, July 21, (WEBNOVINY) — In the interdepartmental review of the draft bill on income from dependent work, the General Prosecution Office took a position fundamentally opposing the proposed tax and levies reform. Introducing the super gross salary from 2012 would, according to the General Prosecution Office, cause direct administrative costs to the state as well as excessively high costs for the employers. The authority considers it inappropriate to burden the employers with such an extensive bill at a time when the private sector still struggles with consequences of financial crisis. Introducing the obligatory annual reconciliation of paid social insurance premiums would also cause additional costs.
“The provision canceling the possibility to reduce the income tax base by insurance contributions also seems to be improper,” the authority stated, explaining that economic theory considers insurance levies to be a form of direct taxes and thus the discussed provision would demand the employee to pay tax from a tax. “They would pay taxes from incomes which are in fact no incomes but insurance levies,” the authority warns. Curbing the tax-free income threshold from 19.2 to 18-fold of subsistence level even worsens the negative impacts of higher taxation.
The authority also points out that according to several OECD analyses, income taxes of legal entities, followed by those of natural persons and by social and health levies respectively are the factors with most negative impact on economic growth. According to their position, Slovakia should prefer increasing the ‘less harmful’ taxes such as excise duties and property taxes to ‘more harmful’ taxes which negatively influence economic growth.
According to the authority, the tax and payroll levies reform could double the tax and levies burden which would negatively influence the co-called tax quota II, reflecting the rate of overall taxes and payroll levies to GDP. The authority warns that after the current 29.1-percent tax quota II is increased, Slovakia could become less attractive for investors. They also recommend leaving a longer period for the interdepartmental review and shifting the planned effectiveness of the bill by one year to January 1, 2013, due to its large extent.
Based on the draft, which the Cabinet adopted in mid-May, the calculation base for taxes and payroll levies will be a super gross wage as of next year, i.e. the current total labor costs [wage + part of employee’s social and health insurance contributions paid by the employer – SITA note]. The reform is also to introduce a single health and single social security payment, as well as a uniform calculation base for payment of taxes and health and social security contributions. The health insurance contribution is to be 9 percent of the calculation base with the exception of persons with disabilities, who will pay a half of the rate. The rate for paying social security contributions for employees is to represent 19 percent, for self-employed tradesmen 13 percent, and for contract agents 10 percent. Flat-rate expenditures of 40 percent of income that the self-employed can deduct from their tax base should be replaced by a cap of approximately EUR 200 a month, which is the minimum subsistence level. The coalition agreed on a gradual reduction of the payroll levy burden of employees by a total of 4 percentage points over four years.
SITA
