![]() So why has Slovakia abolished its flat tax and what are the likely consequences? From its introduction, the policy seemed to work: the economy grew at rates of up to 10 per cent, unemployment decreased from 20 to 10 per cent, and government debt decreased from 50 to 21 per cent of GDP in 2008. Slovakia introduced its flat tax at the same time as joining the EU in 2004, with the aim of attracting foreign direct investment in order to boost the former communist state’s economy. This drew criticism from the opposition who fear a reduction in investment. In addition, the corporate tax rate was increased to 23 per cent. In addition to the original flat tax rate of 19 per cent, the PIT now has a second bracket of 25 per cent for incomes above a multiple of 176.8 of an applicable subsistence minimum (currently amounting to approximately €34,400). ![]() However, in January 2013, Slovakia’s newly re-elected left-wing government (which had previously left the flat tax regime unchanged) re-introduced a directly progressive income tax (PIT) as part of an austerity package. In May 2004, Slovakia was the first Central European country to introduce a flat tax and was considered as one of the role-models for the movement towards lower, flatter tax structures. He also concludes that, despite the lack of data on its effectiveness, the remaining countries in Europe that still use a flat tax are unlikely to abolish it. Andreas Peichl analyses the effects of the flat tax since 2004, and what the results of the government’s move to a more progressive tax system might be. Originally introduced with the aim of stimulating investment and to show the world it had moved on from its former communist economy, it has now been abolished by the country’s newly re-elected government. Slovakia has maintained a flat tax rate for nearly nine years.
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