"Taxable income is defined as gross
income less expenses incurred in earning that income."[56] Some of the deductions include: 1)
depreciation on fixed assets if it does not exceed set rates, with straight
line depreciation being used only;[57] 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.[58]
Furthermore, for corporation inventories are valued
using the first-in, first-out method; last-in, first-out method; or the
weighted average method.
Individual Tax
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.[59] (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.[60]
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.[61]
Withholding Tax
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.[62]
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.[63]
Property Tax
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.[64]
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.[65]
Value-Added Tax
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.
As the previous discussion shows, Slovenia
has developed a highly specific, and involved tax structure. The country is
making an attempt to have a sophisticated tax administration and structure that
is effective, efficient, equitable and has a yield that will allow for enough
revenue for the government to function. In addition, the country has a highly
diversified tax base, which also strengthens the income from tax revenue.
Social Insurance
Slovenia’s current social safety nets and
income transfers are obstructing free market labor productivity, postponing
structural adjustment and are harboring high levels of unemployment. Before
entry into the EU, Slovenia must alter its social programs. There is a strong
belief among EU members that the assistance for employment fostering policies
leading to the future improvement in the quality of labor in Slovenia is more
efficient and desirable than the future income transfers covering unemployment
benefits and social safety that would otherwise have to be provided.[66]
Housing
Housing Policy is yet another area of
concern for the government. In October of 1991, the government of Slovenia
passed the Housing Act. Creating a state housing policy was necessary for the
private ownership of land and building. In addition, the government created
the National Housing Fund which was anticipated to be a "social cushion’
and was supposed to create national housing policy.[67] This did not happen!
The Housing Act ended up back firing. The
Act was created to allow for equal ownership for all citizens. Unfortunately,
some people were able to purchase greater amounts of property and effectively
bought out the property rights of their neighbors.[68] This situation has caused many tenant-owner
conflicts. Another problem created by the Housing Act was the inequity in the
amount of housing sold in each region. There was a great amount of disparity
which may cause problems for future housing reforms.
Unemployment
Slovenia experienced high levels of
unemployment in its first stage of transition as the number of individuals
seeking early retirement increased substantially. In addition, many
enterprises that had entire branches, equipment, factories in the other
Yugoslavian republics went bankrupt or lost a large sector of their business.[69] Therefore, unemployment was a huge social
problem for the new Republic of Slovenia. In 1992, 140,000 people were
unemployed.[70] The transition of the economy brought about
increased need for social insurance. The residents considered retirement
income systems(RIC) the most important part of the social safety net since the
RIC alleviated the economic hardships faced by the retired elderly. The
government of Slovenia knew how these problems used to be solved and they knew
how the EU wanted them to deal with it. The dilemma was deciding what was in
the country’s best interest.
There was a complex relationship between
spending priorities on social safety and on human capital development. The
trade-off in the short-run balanced the government and the private sector
expenditures on welfare and investment in human capital against high
unemployment, increasing poverty, and a high share of retired persons in the
total population absorbing funds that could otherwise be allocated on labor
training programs. However, investment in human capital had the possibility
of increasing productivity and labor force competitiveness in the long-run.
Without sufficient qualifications, Slovenia’s workers experienced high
unemployment and created a demand for compensatory benefits that would have to
be financed either by limited domestic sources or by external savings.[71]
Pensions and Disability
In 1995, the managers of the Pension and
Disability Insurance Fund (ZPIZ) finished the business year with a deficit of
12 billion Tolars.[72] However, the ZPIZ has made it a priority to insure
that all pensioners received their pensions. Additional support for the ZPIZ
and their policy came from the Slovenian Parliament, which passed an increase
of 42 billion Tolars for the funding of the ZPIZ.[73] Furthermore, Slovenia is one of the few
countries in transition that has tried to keep monthly old-age pensions as a
relatively constant percentage rate of the average monthly gross wages. (See
Appendix XII ) This has helped elderly citizens provide for their own needs
through their pensions.
Unemployment
Slovenia also has a National Unemployment
Office (RZZ). This office reported in February 1996, 123,689 people remained
unemployed which is 1.9% more than February 1995.[74] This further supports that the economy of
Slovenia may be experiencing a slow down. As of July of 1996, the RZZ reported
that unemployment was 13.7% but according to the ILO definition of
unemployment, the figure was much lower at 7.3%.[75] However, with the change in government,
hopes are that these issues will be discussed and policies implemented to
reduce the level of unemployment. Currently, the country is providing
unemployment insurance for the people without jobs who register with the RZZ.
Conclusion
Slovenia remains a powerhouse in
comparison to some of the other former Eastern Bloc countries. It has proceed
with some caution, realizing the changes that are necessary for a stable free
market economy. Now, with new leaders, the country has to decide whether it
will continue the course set forth by the originators of the country or whether
it will go back, taking more conservative steps. From Slovenia’s current
actions, it would seem that the next step is either Associate Membership or
Full Membership in the European Union.
Janez Drnovsek when presenting the 1996
budget to parliament informed the legislative body that "Slovenia met
three of the five Maastricht criteria for introducing a single European currency:
‘Our public debt is well below the European average and the budget is balanced,
which is significantly better than the European Union average. We also meet
the third criterion on the convertibility of the national currency. Two
criteria remain: both our average interest rate and our inflation is too high,
but we are planning to cut inflation down to about 6.5%.’"[76] Currently, Slovenia seems to be ahead of
some of the current members of the EU in satisfying the Maastricht Treaty’s
requirements. In addition, the question remains, whether Slovenia will join
NATO. The new parliament may have a well defined opposition to this
prospect.
Additionally, Slovenia is flourishing as
an economic center of commerce in the East. Slovenia needs to strengthen its
ties with other eastern countries, such as Russia, in order to develop its
trade partners. The transitioning countries can serve as a new market for the
West as well as Slovenia. Furthermore, additional trade partners exist in the
far east, which are currently not being considered.
Many challenges face the transition
countries as the century comes to a close. It will be important to watch these
economies as they begin to rise above the already established economies of the
West. It will be important that Slovenia manage it’s inflation rate, keep
interest rates at a stable level and insure that the Tolar remain at a
controlled level. All these factors will play a large role in determining
successful public financial and monetary policy in the Republic of Slovenia.
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