STA, 26 February 2019 - The Finance Ministry has drawn up changes to tax legislation, reducing taxes on labour on the one hand and increasing the capital tax on the other. It hopes that lower taxes on labour will boost spending and economic growth. Most of the changes would step into force in 2020.
Finance Minister Andrej Bertoncelj told the press in Ljubljana on Tuesday that the main goal of the reform was to increase net revenue of those employed to make the Slovenian labour market more competitive internationally.
This is to be achieved with changes to income tax brackets. The draft changes envisage moving the brackets up, reducing the tax rate for certain brackets, and increasing tax incentives.
The ministry expects this to have the biggest effect on the third income bracket, which the minister said affected the "most productive" part of the society. He said both the proposals of employers and trade unions had been taken into account in the changes.
If only the general tax incentive is taken into account, the net revenue of employees with minimum wage would go up by EUR 32, of those receiving average wage by EUR 144 and of those receiving two average wages by EUR 670 a year.
The taxes on the annual holiday allowance would be reduced. As so far, the allowance in the amount of up to average gross pay would not be taxed, but under the new proposal no social contributions would need to be paid from it either. Currently only the allowance that matches 70% of the average gross pay is exempt from contributions.
This means that the employee would receive the entire amount paid out by the company if it did not exceed average gross pay. The ministry would like this to be implemented this year.
For performance bonuses, the ceiling for being except from tax, which currently stands at 100% of average gross pay, would be raised to 150% in 2020. In 2021, it would be pushed to 175% and in 2022 to 200% of average gross pay.
The ministry believes this would cut the budget revenue by some EUR 270m a year. This is to be offset by an increase in corporate tax in 2020, 2021 and 2022 by one percentage point from 19% to 22%.
Current tax incentives for R&D investment would be preserved, but the effective tax rate for a company could not be lower than 5%. The average effective tax rate currently stands between 12% and 13%, Bertoncelj said.
Changes to capital gains tax
The schedular taxation of certain revenue (capital tax, interest and dividends, and revenue from rents) would stay the same, while the tax rate would be raised from 25% to 30%.
Capital gains tax would still be lowered with time, but to a much lesser extent. While currently it drops to 15% after five years of ownership, to 10% after 10 years, to 5% after 15 years and to 0% after 20 years, now it would stand at 30% for the first 10 years and remain at 15% after 10 years.
In total, these changes would increase budget revenue by EUR 110m a year. The remaining EUR 160m needed to cover the gap would be brought in through more efficient tax collection, and the fight against tax fraud, grey economy and social fraud.
According to the ministry, this is how much measures in these fields brought in last year.
Bertoncelj said he had already presented the blueprint of the tax reform to the coalition informally and was currently presenting it to deputy groups. The coalition is to discuss the proposal at its meeting on 12 March.
The changes are also to be debated by the Economic and Social Council, an industrial relations forum.
The ZSSS confederation of trade unions as well as the Chamber of Craft and Small Business (OZS) and the Chamber of Commerce and Industry (GZS) expressed satisfaction with the ministry's proposal.
In its response the ZSSS noted that it had been fighting for lower labour taxes and higher taxation for the capital, while the OZS underlined it was against a higher corporate income tax. A similar position was also voiced by the GZS.