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Business Environment in Slovakia and Potential Learnings. Slovakia - Basic Facts. Population: 5,4 MM Area: 49 035 km sq. Unemployment: 1 2,9 % GDP growth: 5,5 %. Slovak Top Points. Referendum for EU entry – the highest percentage voting YES (92.5%)
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Business Environment in Slovakia and Potential Learnings Kyiv, May 16, 2005
Slovakia - Basic Facts Population: 5,4 MM Area: 49 035 km sq. Unemployment: 12,9% GDP growth: 5,5% Kyiv, May 16, 2005
Slovak Top Points • Referendum for EU entry – the highest percentage voting YES (92.5%) • The fastest growing economy in Central Europe (4% CAGR 1997-2004) • The largest country entering to EU and NATO in 2004 • First EU country introducing one VAT rate and one Flat Corporate and Personal Income Tax (19%) Kyiv, May 16, 2005
Development of IBE Index of Business Environment Access to Credit IBE Index Law Enforcement Kyiv, May 16, 2005
Slovakia – the best items • 3. – FDI bringing new technology • 4. – Conditions for employment of foreign labor • 8. – Tax impact on doing business • 10.- Access to credit • 11. – Availability of engineers and scientists • 13. – Quality of education of math and science Kyiv, May 16, 2005
Slovakia – the worst items • 96. – Regional differences • 89. – Airport infrastructure and transport • 81. – State budget deficit • 66. – Governmental support for information technologies • 66. – Cost of agricultural policy • 64. – Efficiency of judiciary system Kyiv, May 16, 2005
Ukraine – the best items • 7. – Local Availability of Process Machinery • 8. – Hiring and Firing Practices • 11. – Local Availability of Components and Parts • 18. – Real Effective Exchange Rate • 19.- Pay and Productivity • 19. – Railroad Infrastructure Development Kyiv, May 16, 2005
Ukraine – the worst items • 103. – Pervasiveness of money lundering through banks • 102. – Cost of agricultural policy • 101.- Efficiency of the Tax System • 99. – Subsidies for Energy or Materials • 95. – Judicial Independence • 93. – Foreign Ownership Restrictions Kyiv, May 16, 2005
Tax Strategy • Very often changes of legislation • Income Tax Law -31x, Administration of Taxes and Fees -20x • Too big contents – Income Tax Law 4x bigger in 10 years • Ad hoc reaction • Non-univocal explanation of law and potential conflicts with Tax Offices • Need for new complex Tax Strategy • Taxes should secure funding of public service • Taxes should have as neutral as possible impact for doing business Kyiv, May 16, 2005
Tax System • Direct Tax • Profit • Flat Corporate and Personal Income Tax • Equity • Real Estate Tax • Motor Vehicles Tax • Indirect Tax • General Consumption • Value Added Tax • Specific Consumption • Consumer Alcohol Tax • Consumer Beer Tax • Consumer Wine Tax • Consumer Tobacco and Tobacco Products Tax • Consumer Mineral Oil Tax Kyiv, May 16, 2005
Results of Slovak Tax Reform • Cancelled • Inheritance Tax • Tax on Sale of Real Estate • Tax on Dividends • Flat Tax Introduction • Savings of only one VAT rate • Simplicity of Tax System • Transparency for all Stakeholders • Stimulation for higher Earnings Kyiv, May 16, 2005
SWOT Strengths GDP Growth Tax Reform Labour Law New Business Start Up Weaknesses Law Enforcement Regional Differences Environment Protection Policy Opportunities Informatization Social Cost reduction EMU Membership Threats Harmonization Trends in EU CAP Kyiv, May 16, 2005
Business Environment Priorities 1/ Easy Market Access 2/ Flexible Labor Market 3/ Simple Tax and Administrative Rules Kyiv, May 16, 2005
1/ Easy Market Access • Entry Cost to Market • Denmark 0 fee • In most EU countries high fee (1500-6000 EUR) • Entry Time to Market • Denmark 3 days, UK 5 days • 2-3 months in some new EU countries • Simplification of Administration for Start of new business Kyiv, May 16, 2005
2/ Flexible Labor Market • Need for Improvement of Labor Mobility • More flexible Labor Code • Working Time • Variable Job Contracts • Temporary Workers Use • Comparison with US • 25 – 54 OK • <25 far behind • >54 far behind Kyiv, May 16, 2005
3/ Simple Tax and Administrative Rules • Income tax level is lower than in US (average 13.3% vs. 15.7%) • Social cost is doubled than in US (29.9% vs.14.2%) • Social cost reform is necessary in most European countries • Simple and Stable Rules • Flat Tax Kyiv, May 16, 2005
Support for European Enlargement • European Integration will lead to the Efficiency Improvement • Economic Standardization • Cultural Localization • Regular communication between Business and Politics is inevitable Kyiv, May 16, 2005
Priorities of Lisbon Strategy in Slovakia • Information Society • Innovation, Science and Research • Investments into HR and Education • Business Environment Kyiv, May 16, 2005
SME‘s as the Core of the Economy • There is more than20 million SME’s in EU • SME’s create in EU66%employment in a private sector • SME’sreact fasterfor market needs as big companies • Development of SME’s will supportfaster and more stable GDP growth Kyiv, May 16, 2005
The FDI Impact • Direct Investments and Employment • Indirect Employment (multiplier effect) • Improvement of Productivity • Education • Ethical Standards Kyiv, May 16, 2005
Learnings • Simple and Transparent Legislation • Easy Market Access • Flexible Labor Market • Simple Tax and Administrative Rules • Efficient Institutional Framework • Law Enforcement and Judiciary Efficiency • Ethical Standards • Regular Communication between Business and Politics Kyiv, May 16, 2005
Development of Business Environment will contribute to the Improvement of Quality of Lives in Ukraine Kyiv, May 16, 2005