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Business Environment Reforms in Slovakia

Business Environment Reforms in Slovakia. Robert Kicina Business Alliance of Slovakia October , 20 1 0 Skopje. Business Alliance of Slovakia. Business association, founded in 2001 by the Center for Economic Development (CPHR) and the Institute for Economic and Social Reforms (INEKO)

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Business Environment Reforms in Slovakia

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  1. Business EnvironmentReforms in Slovakia Robert Kicina Business Alliance of Slovakia October, 2010 Skopje

  2. Business Alliance of Slovakia • Business association, founded in 2001 by the Center for Economic Development (CPHR) and the Institute for Economic and Social Reforms (INEKO) • 40 corporations; 65.000 e..ees; € 12,2 bn. revenues/year • Mission: Improvement of Business Environment in Slovakia by changing formal and informal rules

  3. Key Reforms in Slovakia • Taxes (Flat tax) • Labour law (More flexibility) • Registry Courts (Easy registration) • Property registration (Express fees at cadastre)

  4. Key results of the reforms • Higher „green-field“ FDI (mainlyin automobile and electronic industry - KIA, PSA Peugeot Citroën, Volkswagen, Samsung and Sony • Fast GDP growth (more than 10% in 2007) • Lower unemployment (from almost 20% in 2001 to less than 10% in 2008) • Fulfilling Maastricht criteria and adopting Euro since 2009

  5. Unemployment and GDP growth Source: Eurostat

  6. FDI Inflow 1998 – 2002: mainly privatization of banks, telecommunications and energy Since 2002: mainly “green field” investment in automobile and electronic industry (KIA, PSA Peugeot Citroën, Volkswagen, Samsung and Sony) Source: National Bank of Slovakia, Statistical Office of the SR

  7. Competitiveness and B.Environment Global Competitiveness Rank Business Environment Index Source: World Economic Forum &Business Alliance of Slovakia

  8. Sources of GDP growth Source: INEKO survey among 12 local economists, March 2007

  9. Tax reform – facts • Flat 19% tax on personal income • Almost three-times highertax allowance deductible from the tax base • Corporate income tax down from 25% to 19% • Abolition of dividend tax • Cancellation of all exemptions, exceptions, and special tax rates • Higher indirect taxes (universal 19% VAT rate, higher taxes on mineral oils, tobacco, and beer) • Abolition of “small” taxes (gift, inheritance, and real estate transfer taxes)

  10. Tax reform – logic behind facts • Flat tax brings simplicity • Investors welcome lower taxation on corporate profits • Lower direct taxes have positive impact on work incentives, help to fight against shadow economy, and reduce tax evasion • Lowering direct taxes requires higher indirect taxes, which is unpopular • Compensation for low income people is one of key preconditions for successful reform

  11. Tax reform – results • Better than expected impact on public finance revenues • Lower tax evasion and improved solidarity: • People with higher income started to pay more taxes • Low income workers pay lower taxes (the basic tax allowance deductible from the tax base went up almost three-fold) • People with below average income paid: • 2002-2003: 20% of the revenues from income tax • 2004-2005: 11% • Higher inflow of „green field“ FDI • Higher GDP growth and higher employment

  12. Source: INEKO

  13. Source: INEKO

  14. Source: INEKO

  15. Source: INEKO based on Ministry of Finance of the SR, and KPMG (2004)

  16. Labour Code • Basic features of 2003 reform: • More flexibility • Less coercive character – setting only basic standards • Weaker trade unions

  17. Labour Code Source: The World Bank Doing Business in 2005

  18. Labour Code Source: Global Competitiveness Report; World Economic Forum

  19. Current and expectedreforms • Lower and more simple payroll taxes (Social security, health care) – eliminating exceptions, lowering payroll taxes • Improved transparency in public procurement (publishing all contracts and invoices on internet, electronic auctions, etc.) • Law enforcement and judiciary system efficiency

  20. Payroll taxes (% of gross wage) Source: Ministry of Finance of the SR (2004); and OECD statistics

  21. Thank you for your attention! Róbert Kičina ExecutiveDirectorof BAS Business Allianceof Slovakia www.alianciapas.sk pas@alianciapas.sk

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