Slovakia's 2004 Tax and Welfare Reforms
The paper reviews Slovakia's comprehensive reforms to its taxation and welfare systems in 2004, including the introduction of a flat-rate income tax and single-rate value-added tax (VAT), and linkage of social benefits to participation in labor market programs. Though revenues following the reform are lower as a ratio to GDP, the paper argues that the reforms have helped encourage investment and improved efficiency by broadening the tax base, reducing the administrative burden, and improving work incentives. The paper also looks at some implications of the reforms for income distribution and social protection.
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Brief Overview of the Reforms
Effective Marginal Income Tax Rate Single Taxpayer
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19 percent 25 percent 55 58 Taxpayer 58 Taxpayer gross activation programs Average Composite Tax average wage budget taxes CIT rate composite marginal tax composite tax rate consumption taxes corporate income tax dividend effective tax rates employee estimate Excise taxes Figure Finance and IMF fiscal gross wages household income implies income ranges income tax rate increase individual insurance contributions labor supply labor taxes marginal effective tax marginal tax rates Married Taxpayer maximum assessment base METRs Ministry of Finance Ministry of Labor monthly incomes non-working spouse OECD overall tax participate in activation payable payroll taxes percent of GDP Percent of gross percentage points personal income tax poverty rate of 19 revenue Roma sector significantly single taxpayer Slovak Ministry Slovak Republic Slovakia social assistance benefits social transfers Source subsistence minimum tax and welfare tax burden tax system tax wedge tax-free threshold taxation VAT rate welfare reforms welfare system withholding tax