Projected Tax Levels For 2005, Calculated On 7% Inflation Rate

The Government has initiated a draft resolution regarding local taxes to be applied as of next year. The figures are currently debated by The Economic and Social Council. Based on a seven percent inflation rate estimate for next year, The Government will update taxable revenue thresholds and local taxes (defined as fixed sums), as well as the fines stipulated in The Criminal Code. The draft resolution will most probably be discussed during the next Government meeting.

This is the first time that The Government considers making tax projections public more than have a year before such projections are scheduled to come into effect. The change is due to the new Fiscal Code, applicable since the beginning of this year.

One of the most significant advantages that the new Fiscal Code offers to corporate taxpayers is enhanced legal stability and predictability, which now permit the making of business plans for longer terms. The Fiscal Code can be modified only through an organic law enacted six months before the modifications become applicable. Under these circumstances, individual and corporate taxpayers will know, in mid this year, the taxes and duties applicable as of January 1st, 2005. Thus, a one-year business plan will no longer be subject to frequent changes made to fiscal legislation. The degree of fiscal predictability may further increase, if the fiscal strategy for 2005-2007, which is being elaborated these days, stipulates firmly scheduled tax levels.

The current Fiscal Code was promulgated in December 2003 and came into effect as of January 1st, 2004. The business community generally agreed that the new Fiscal Code, which replaced 43 fiscal laws, was a step forward to improving the economic environment. Debates on further changes to The Fiscal Code will have to be concluded this month, so as to be legally possible to include such changes in the draft year 2005 budget and promulgate them by mid-this year. The Government has already promised the business community that corporate taxpayers will be able to choose between zero tax on reinvested profit and accelerated amortization, which are both intended to stimulate investment. Further changes that may be made to The Fiscal Code include a profit tax cut, a dividend tax increase and the reduction of the number of global income tax thresholds from five to three.