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OECD Tax Policy Reviews: Slovenia 2018

image of OECD Tax Policy Reviews: Slovenia 2018

This report is part of the OECD Tax Policy Reviews. The Reviews are intended to provide independent, comprehensive and comparative assessments of OECD member and non-member countries’ tax systems as well as concrete recommendations for tax policy reform. By identifying tailored tax policy reform options, the objective of the Reviews is to enhance the design of existing tax policies and to support the adoption of new reforms.

This report provides a comprehensive tax policy assessment of the taxes paid by individuals in Slovenia as well as tax reform recommendations. The report is divided into six chapters, with a summary of the main findings upfront, followed by more detailed recommendations at the end of chapters 3 to 6.  Chapter 1 sets the scene for tax reform in Slovenia. Chapter 2 focuses on the labour market, social policy and tax policy related challenges. The ensuing chapters assess the financing of the social security system (Chapter 3), identify strategies to strengthen the design of personal income tax (Chapter 4), indirect taxes (Chapter 5), and the taxation of capital income at the individual level (Chapter 6).

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Strengthening the design of the personal income tax

Scope exists to strengthen the role of the PIT. Any cut in employee SSCs needs to go hand in hand with re-designing the PIT rate schedule to maximise labour market participation, to share the gains of the employee SSC reduction fairly across the income distribution and to help finance the reform. The PIT increases the tax burden on labour income, particularly for higher income earners. The top PIT rate is high and reducing it would come at a relatively low cost. The tax base is relatively narrow as a result of exemptions and special tax provisions. Tax provisions take the form of tax allowances, which is in contrast to best practice in the OECD, where tax credits are more widely used as they provide the same benefit to all taxpayers irrespective of their income and marginal tax rates. Broadening the tax base could be achieved by abolishing the tax exemption for the reimbursement of home-work travel expenses and meals during work and by taxing annual and performance bonuses as regular taxable income. Families with children are taxed significantly less than single taxpayers as they can benefit from both child tax allowances and child cash benefits. High tax burdens on labour income reduce the incentives for entrepreneurship. In response, Slovenia has introduced an alternative “flat-rate” regime which is overly generous and prevents businesses from growing.

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