Slovak Government Announces Major Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

15 May 2001

Slovakia's ruling SDKU party (Slovak Democratic and Christian Union) has outlined its medium-term economic programme, which includes a series of phased tax cuts for both individuals and companies.

Slovak Deputy Prime Minister for the Economy Ivan Miklos told a press confernece on Sunday that the headline rate of corporation tax would fall to just 18% by 2006. The SDKU proposes to lower the tax from the current 29 to 26 per cent as of 1 January 2002 and further decrease it by 2 per cent each year.

For individuals, SDKU proposes to condense the current seven tax bands to just three or four as of January 2002 and to reduce the range of tax rates from the current 12% to 42% slightly, to 11% to 40%.

The SDKU also proposes to increase the personal allowance to 40,000 korunas, and if possible will gradually reduce the level of social insirance payments.

Like most countries that were previously under Soviet domination, social insurance payments are made to a variety of different funds, and the SDKU would like to reduce bureaucracy by allowing contributions to be made to just one institution that could then distribute them around the various funds.

Continuing his litany of good news, Miklos announced that the country's real estate transfer tax of between 4% and 20% would be condensed to a single rate of 5%. He justified this move by pointing to the Czech Republic, where a similar reform had actually increased the tax take, presumably by increasing compliance.

Miklos rejected criticisms that the government had increased taxation, saying that the overall burden of tax had fallen from 35.7% when his party won power in a landslide election to 31.2% in 2001. In the same period, public spending had fallen from 47.4% of GDP to the current 38.9%, so that the deficit had fallen from 11.7% to 7.7%.

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