Threat to the arrival of investors and higher motivation to avoid taxes. The government wants more from wealthier firms
08.10.2024 11:56
Firms with a turnover over five million euros face a significantly higher income tax rate from next year. Employers fear a further decline in the quality of the business environment in Slovakia. The threats are a decline in competitiveness, a loss of investment and of new jobs.
A higher special levy for energy firms, which was originally part of the consolidation, hit an obstacle. The tens of millions that the government counted on with this measure will again be paid by wealthier firms.
The increase in the special levy for energy firms, which until recently was to be part of the measures to restore public finances next year, ran into a memorandum with Slovenské elektrárne negotiated back during the government of Eduard Heger.
„It was agreed that if any levy were introduced, the state would have to pay the difference in price; we are talking about an amount of around 900 million euros, which we cannot allow,“ declared Finance Minister Ladislav Kamenický at Monday's parliamentary committee for finance and budget.
The government therefore decided to remove the special levy for energy companies from the consolidation package. However, it will replace it with an even higher corporate income tax rate for wealthier firms.
New corporate tax rate
The original plan, when the government presented the first version of the consolidation package, was to increase the upper corporate income tax rate by one percentage point to 22 percent for firms with taxable income over five million euros. This was to bring the state treasury an additional 163 million euros.
Later, when the coalition also moved food and drink in the gastro sector into the reduced VAT rates, the shortfall was to be partly offset by reducing the limit of the amount of taxable income for the 22 percent rate to one million. „This would raise the tax revenue to approximately 200 million euros,“ says economist from the Council for Budget Responsibility Martin Šuster.
However, even that no longer applies now. The highest corporate tax rate will rise all the way to 24 percent for enterprises with taxable income over five million euros. „On the one hand we are going to abolish the 22-percent rate for legal entities with income of one million euros, but the 24-percent rate will apply to firms with income over five million euros,“ informed Kamenický.
The Budget Council allows that this should be sufficient to cover the removed sectoral tax for energy, which, according to the finance ministry, was to bring an additional 156 million euros. „The revenue could theoretically be up to three times the original amount, that is 468 million euros. In practice, however, it will be less, since the motivation to avoid paying tax increases significantly,“ stated Šuster.
A fundamental change for firms
According to the general secretary of the Association of Industrial Unions and Transport, Andrej Lasz, the proposed increase of the corporate income tax rate to 24 percent for firms with a turnover over five million euros represents a fundamental change that can have significant impacts on the business environment in Slovakia.
He also added that the turnover limit of five million euros, from which the new higher rate will apply, may also affect medium-sized enterprises, which make up a significant part of Slovak industry. For these firms such a turnover is common, and therefore the impacts of this measure could affect a wider circle of companies than just large corporations.
However, the representatives of the automotive industry, which is a backbone of the Slovak economy, are also still in uncertainty. „We are closely monitoring the situation concerning the announced consolidation measures. At present we are still waiting for the final form of the individual measures and the exact dates of their effectiveness, so that we can precisely analyse and evaluate their impact on our production plant,“ said the spokesperson of the company Kia Slovakia, Tomáš Potoček, for HN.
„In general, however, the introduction of new fees and the increase of the tax burden for firms has a negative impact on the business environment, since it reduces the competitiveness of enterprises and increases their operating costs,“ Potoček continues.
The arrival of new investment under threat
The Ministry of Economy also argued in favour of the proposal for a higher tax that, even after the increase to 24 percent, the corporate income tax rate will remain competitive compared to larger EU economies such as Spain, France, Italy or Germany, with upper corporate tax rates from 25 up to almost 30 percent.
The Association of Industrial Unions and Transport, however, points out that when comparing with the mentioned larger countries, one must take into account not only the amount of the tax, but also the overall business environment and regulatory conditions that these economies offer.
„From the perspective of Slovak business, it is important to emphasise that many firms are already facing pressure caused by rising costs, and this measure can weaken their competitiveness even further,“ claims Lasz. According to him, Slovakia must proceed prudently in order to preserve its attractiveness for investors who are considering expansion or new investment.
The Association of Employers' Unions and Associations also points out that, in seeking solutions, the government should not forget that long-term pressure on firms could lead to undesirable consequences, such as not only a reduction in competitiveness, but ultimately also a loss of jobs and an outflow of investment.
„The quality of the business environment has been deteriorating over the long term, and if a further burden is thrown onto entrepreneurs without any prospect of better state services, it is very likely that they will move their activities to other countries where they will have more attractive conditions for doing business,“ said the association's spokesperson Miriam Filová.
Article taken from HNonline.sk.
