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Slovenia Business Week no. 01/2005: PM's Office: Tax Reform Will Not Be Put Off

The implementation of a comprehensive tax reform, which is due on 1 January 2005, will not be put off even if the government's advisory economic council on Friday proposed its one-year freezing, the prime minister's office said in a press release on Monday, 27 December

The office moreover said the postponement is not feasible before 1 January for several reasons: it would be impossible to assess all the consequences of such a move in the short period before the end of the year.

Furthermore, there is not enough time to draft new bills, discuss them in parliament and secure that all social partners are in favour of a postponement. The National Assembly's standing orders too do not allow such a move.

The new tax legislation will therefore enter into force as of 2005, the prime minister's office said.

The government nevertheless agrees that the warnings made by the Strategic Council for Economic Development on Friday were founded, and so the Ministry of Finance will draft a new comprehensive tax reform in the shortest period possible.

The council, for instance, said that economic risks in meeting the nominal convergence criteria for the euro could increase as a result of the reform. It also said that some of the new tax laws are unclear and inconsistent.

Moreover, if the reform is implemented, the budget in 2005 would suffer a certain loss of the anticipated revenues, warned the council. Unable to freeze the reform, the government will study the loss of revenues in order to put forward a supplemented budget for 2005.

The new tax legislation was passed in parliament in spring, and will come into force on 1 January, with the exception of what are termed "European provisions", which entered into force as early as 1 May 2004, when Slovenia entered the EU.

The previous, Anton Rop government's priority in drafting the new legislation was to make the tax code compliant with EU regulations and to distribute taxes more fairly between labour and capital: while taxes on labour would be reduced, those on capital would increase.

The new government, which assumed office at the beginning of December, had already changed provisions dealing with owners of large stakes in companies, bringing down the effective tax rate from 50 percent to 20 percent.

Author: Branka Murn