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Slovenia Business Week no. 46/2004: New Year's Will Bring New Taxes

One of the last big projects that the outgoing government completed this year was a comprehensive tax reform, designed to upgrade the system as a whole and divide the tax burden more evenly

One of the last big projects that the outgoing government completed this year was a comprehensive tax reform, designed to upgrade the system as a whole and divide the tax burden more evenly. The most important new pieces of legislation are the income tax act and the corporate income tax act, which enter into force on New Year's.

In the new income tax act, the tax brackets were redefined so that the average tax burden will decrease by 9.5 percent, according to government calculations. The lowest tax rate has been reduced to 16 percent while the highest income bracket is eligible for a 50 percent tax. Those earning minimum wage will be exempt from income tax completely.

One of the centrepieces of the income tax act is the principle of general tax obligation, which means that every type of income is generally liable for income tax. This includes interest rates from bank savings, but only if they exceed SIT 300,000 (EUR 1,250).

Foreigners and those earning money abroad will also see their tax bill increase: every personal income from abroad will be taxed, as will be non-residents for the money they earn in Slovenia.

Tax relief will be expressed in fixed sums rather than in percent. The general relief that all taxpayers are entitled to will stand at SIT 591,000 (EUR 2,460). This compares to the previously applicable 11 percent, which in 2003 averaged SIT 334,000 (EUR 1,400).

At the same time, special tax relief (for specialised books, medicine, etc.) will be reduced from 3 to 2 percent. Additionally, some types of goods and services will no longer be allowed as tax relief, while others, most notably the cost of Internet installation, have been added.

After the income tax act was already passed, students threatened to strike against the prospect of having their earnings taxed more heavily than so far. The government obliged and changed the legislation appropriately.

Annual tax relief for students was raised from the current SIT 668,000 (EUR 2,790) to SIT 1.2m (EUR 5,000). Moreover, the level of tax deduction for income earned through student job agencies will be lowered from 25 percent to 12.5 percent.

According to the amendments, students will be exempt from tax completely if they will be earning less than SIT 1.36m (EUR 5,670) in 2005 as supported family members, or if they earn less than SIT 1.6 (EUR 6,670) while being on their own.

The accrued tax cuts will significantly expand the budget gap: it is expected that SIT 37bn (EUR 154m) less will flow into the budget in 2005. According to plans, the effect will be offset by greater taxation of capital.

The new corporate income tax did not change the tax rate, which remains at 25 percent, but shrank the available types of tax relief. Companies will be granted only a 10 percent relief for investment in fixed assets (except vehicles and furniture) and intangible assets. They will be given an additional 10 percent break if the assets are used for R & D within Slovenia.

Another novelty is that companies will be treated equally regardless of the type of incorporation; indeed, one of the most important stimuli for the adoption of this act was the requirement of the EU that a common taxation system be in place for parent companies and subsidiaries alike.

The income tax act and the corporate income tax act are the most significant parts of the tax reform package, but they are not the only ones: the tax service act was also amended to upgrade the institutional framework for taxation. Meanwhile, the customs service act entered into force on 28 May in compliance with EU requirements regarding customs services.

Source: Slovene Press Agency STA

Author: Branka Murn