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New tax reform blueprint unveiled

Ljubljana, 21 June (STA) - Four months after outlining its tax reform ideas, the government has now presented a consolidated blueprint for tax changes that follows the original philosophy of reducing taxes on labour and increasing the taxation of capital. However, the taxation of capital will not increase by as much as originally planned.

In general, the changes are designed to increase take-home pay, which will be achieved with a higher general tax credit that all taxpayers are entitled to, by EUR 200 to EUR 3,500.

In an effort to reduce the tax burden on the middle class, the tax rate in the second income tax bracket will drop by one percentage point to 25% and the third bracket will go from 34% to 32%.

Capital gains will be taxed at 27.5%, up from the current rate of 25%. The original proposal was to raise the rate by a full five points to 30%.

Capital gains tax would still be lower the longer individuals possess the taxable assets. The pace would be the same as now, when it drops by five percentage points for every five years of ownership until it reaches zero after twenty years, only in this case it would drop by 7.5 points after five years.

The original proposal was much more harsh, as the rate was proposed to stand at 30% for the first 10 years and remain at 15% after 10 years.

The taxation of rental income will likewise be raised from 25% to 27.5%, but the default tax allowance, which automatically reduces taxable income, will rise to 15% from 10%.

Corporate income tax is planned to go up by a point to 20%, a significant change from the 22% originally proposed. The lowest effective tax rate - after tax allowance for investments and coverage of past losses - will be 7%.

One notable novelty is the withdrawal of the idea to reduce the tax on performance bonuses, while one original proposal, lower taxes on holiday allowance, has already been implemented.

Overall, the tax cuts are estimated to be worth EUR 128 million, while additional taxes will increase receipts by an estimated EUR 87 million.

The already implemented tax cuts on holiday allowance are projected to reduce receipts by EUR 90 million annually.

The Finance Ministry officially submitted the blueprint for public consultation on Friday and will accept comments until 1 August.

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