Expenditure Policies and Assignments
In October 1995, the Parliament unanimously approved the 1996 draft budget presented by Slovene Prime Minister Janez Drnovsek. Expenditures are expected to be about 570 billion Tolars (about $5 Bill.). A significant portion of the expenditures are allocated for health, education and infrastructure. Revenues for 1996 were expected to be 582 billion Tolars, about
46.5% of Slovenia’s GDP. The surplus is allocated to cover the Pension and Invalidity Insurance Funds, this action preempts the expected expenditure of 42 billions Tolars in 1997 towards the Pension Fund which is a 20% increase from 1996. One-third of the budget will be spent on Civil Servants salaries and contributions, much higher that the 1995, due to the desire to increase public employees salaries. Nearly 11 billion Tolars will be spent on subsidies to exporters for social welfare contributions, technological development, and for maintaining current levels of employment. Although, there were no current figures available concerning defense expenditures figures from 1993 show 13.4 billion Tolars were allocated for the military, about 4.5% of the GDP. Finally about four million Tolars are allocated for liabilities in international agreements to members of the Paris Club and commercial banks; this is a new item in the budget. However, the current expenditures are being met by disapproval from the Slovenian businessmen, who wanted a budget for 1996 to be equivalent to the 1995 budget. This demand was not possible for Slovenia, as it tries to battle inflation, unemployment and provide for its’ citizens welfare.
Tax Structure and Administration
Intergovernmental Financial Relationships
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Slovenia has had relative success with the administration and collection of taxes from its citizens and corporations at all levels of government.. Article 147 of the Constitution states very generally: " the state shall levy taxes, custom duties and other charges in accordance with statute. Local government bodies shall levy taxes and other charges in such circumstances as are determined by this Constitution and by statute." This constant flow of funds has allowed the government to continue to provide needed services, as well as end several years, since independence, with budget surpluses. The country has tried to diversify the tax base, which has also added to the increased stability of the tax base.
The Slovene government is making extra efforts to insure successful implementation of tax policy. Slovenian tax administrators are taking part in the OECD’s multilateral tax network program which provides advice on taxation practice, policy and systems, with workshops for administrators in member countries such as Austria, Denmark, Hungary and Turkey. In addition, this program will evaluate the countries after the year is over, regarding their effectiveness in implementing tax policy. A key factor that has aided in the current implementation of the tax system is that the Slovenian Tolar is internally convertible, and therefore, foreign investors or business dealing can take place easily in foreign or domestic currency.
In 1997, Slovenia intends to unify the tax administration offices. Currently, there are two tax collection services, one for the companies and one for the individuals. In addition, according to OECD, in the next two years there will be significant changes in the tax policy and administration in Slovenia.
Currently, the tax year runs from 1 January to 31 December, with tax returns to be filed by 31 March of the following year (15 April for a consolidated return). In general, the system depends on self-assessment, however, if there is falsification of earnings or evasion of taxes, the government assesses heavy penalties.
The government, although requiring penalties for late payments is being realistic in the charges it assess for tardiness. A new act was passed in 1995, which reduced the late payment fees from 25% of amount owed to 18% on all public aged debt including income tax, sales tax and social security late payments.
The tax administrators have developed a system which allows for advance payment of taxes and deadlines that apply to readjustment of taxes. Balances due on taxes must be paid five days after the annual return has been filed and if readjustments are made then the company has thirty days to make the payment.
Corporate Tax and Incentives
As of 1995, the corporate tax rate was at 25%. The republic has made a large effort to keep the business environment attractive to foreign investors. However, the rates were increased to 30% by 1996 and now legislation is trying to reduce the amount to 25% once again; the reduction in taxable income due to re-investment exemptions could make the effective rate 20%, if legislation goes through. Slovenia continues to honor double taxation treaties signed by the former Yugoslavian government. In addition, a temporary tax exemption regarding capital gains derived from securities transactions has been extended to January 1, 1997. "As of January 1, 1994, up to 20% of the amount reinvested in fixed assets(except for cars used for personal purposes) and long-term intangible assets is deductible from the investor’s taxable income, provided that the amount does not exceed the tax base." The tax structure also provides for 30% deductions from taxable income for the first year if the corporation hires an unemployed or disabled worker.
"Taxable income is defined as gross income less expenses incurred in earning that income." Some of the deductions include: 1) depreciation on fixed assets if it does not exceed set rates, with straight line depreciation being used only; 2) interest if it does not exceed the average interbank interest rate; 3) sums contributed for future reserves for investment; 4) up to 70% for entertainment expenses; 5) losses may be only carried forward for five years.
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Furthermore, for corporation inventories are valued using the first-in, first-out method; last-in, first-out method; or the weighted average method.
If one is a resident citizen of Slovenia, taxable income includes income world-wide, however, for non-residents only income earned within Slovenia can be taxed. The system does not provide for the taxation of families, only individuals; therefore, joint tax returns are not filled. The income tax is paid directly through the employer and is based on progressive rates for the income earned in the previous month. (See Appendix XI) In addition, capital gains of real estate are taxable. After January 1, 1997, gains from sales of securities will also be taxable.
The government has some deductions and relief built into the system. All individuals may deduct an amount equal to 11% of the annual wage in Slovenia; in fact if you earn less than this amount you do not have to file a return. Furthermore, up to 3% of the tax base can be deducted for each of the following: 1) expenses in purchasing state securities, 2) membership fees in various parties or organizations, 3) payments for health care, 4) payments for education.
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Slovenia levies a withholding tax of 25% for residents and 15% for non-residents. There is also a withholding tax on royalties of 25% on all individuals.
Inheritance and Gift Tax
Beneficiaries of the inheritance or gift must pay taxes unless they are the spouse or child of the donor. If the beneficiary is a relative(i.e., brother, sister , nephew or niece) they have to pay only 5 Tolars on receipts with a market value of 1,164,822 Tolars. However, if the beneficiary is not a relative they may have to pay up to 30% of the value in taxes.
Once the value of the building is determined by the government, a progressive rate of no more than 1.5% is applied. Some buildings may be exempt. Their is also a tax of 2% of the purchase price on immovable property.
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Customs and Excise Duties
Rates for imports vary form 0% to 25% of the value of the goods. There are also some excise taxes which apply to fuel, tobacco, and alcohol.
The VAT, which was introduced to Slovenia at the beginning of 1996, will provide important revenue to the Slovenian government. Before the VAT was introduced, sales tax was assessed on the sale of retail goods and services and on imports. However, several rates applied depending on the type of good. The tax was ultimately paid by the consumer. The VAT has already been introduced in 5 other transitional economies and it seems to be effective. In addition according to OECD, the VAT continues to be a key in the tax reform process in the transition countries.