ECONOMY

Call for single income tax rate

Alpha Bank is proposing a single income tax for salary earners, businesses and self-employed professionals in its latest economic bulletin. The change should be effected over a transitional period, with a parallel increase in the tax-free ceiling, and a significant broadening of the tax base by effectively fighting tax evasion and avoidance and abolition of tax breaks. The authors of the report also recommend the gradual reduction in the top income tax from 40 percent to 25 percent, that is, bringing it to the same level as the planned level of corporate tax. They also believe that a further rise in value-added tax (VAT) rates may be necessary (the standard rate is 19 percent today), at the same time as a substantial improvement in the collection mechanism in order to drastically reduce the high incidence of tax evasion. The report also proposes a substantial reform for taxes on property, fuels and other special items so that they may be harmonized with those elsewhere in the European Union. The single tax rate is applied in various forms in several EU members, particularly among the 10 newcomers (Slovakia, Lithuania, Estonia and Latvia) as well as in Russia, Ukraine and Serbia. Poland and Spain are considering it. The report argues that the single tax rate eliminates incentives to work and entrepreneurship and secures the necessary funds for the government to finance the really necessary items. «The tax system in question is considered unique and can lead to high rates of growth and social prosperity,» the Alpha Bank bulletin says. The authors criticize the complexity of the tax system in force. «This system is characterized as particularly complex and unfair to a large degree, with a tendency to foster tax evasion, evasion of social security contributions or even refusal to pay ascertained taxes. This renders the level of the tax burden particularly high for consistent taxpayers. Characteristically, despite the important measures which have been introduced for the simplification and rationalization of the system in recent years, the above dysfunctions have rather intensified… As a result, the rise in ordinary budget net revenue in the 2003-2005 period did not exceed 4.5 percent annually, when the average annual growth in nominal GDP was 8.1 percent and the average rise in primary public expenses was over 10.5 percent,» the report notes. There was also a significant rise in uncollected ascertained dues to 19 billion euros (10.5 percent of GDP). The inability to collect such vast revenues results in the comparative overtaxation particularly of middle-income salary earners, it adds.