Currency
In October 1991, the Tolar was introduced. As a means of inflation-proofing, the law allowed contracts and wage agreements to be denominated in foreign currency so no exchange was required. The deposits in the banks were converted automatically on a one-to-one basis and 86 billion dinars of personal cash were converted within a short period of time. The tolar’s introduction came with ease as more than 80 percent of household monetary savings were in foreign currency deposits.[35] The Tolar’s exchange rate quickly stabilized due to a highly restrictive monetary policy which was aimed at decreasing inflation, increasing stability and strengthening the domestic currency.[36] Between 1993 and 1995 the Tolar was depreciated to reflect a real exchange rate. (See Appendix IX) This monetary policy aided in stabilizing the Tolar and making it fully convertible. On November 19, 1996, 1USD was equivalent to 137.69 Tolars.[37] In addition, the stabilization allowed for foreign investors to conduct business in USD, DM or Tolar.
Slovenia put tight controls on foreign currency movements in order to maintain the stability of the tolar. Since the introduction of the Tolar, total savings deposits have increased by over 494 billion Tolars. Savings in 1995 accounted for 23.3 percent of GDP.
Also, Slovenia has a positive balance between the foreign debt and exchange reserves. By August of 1996, foreign allocated debt had reached $4.21 Billion and the exchange reserves were at $4.3 Billion. (See Appendix X) This positive balance shows that the country’s economy continues to stabilize.
Furthermore, Slovenia has managed to get credit ratings higher than those of Greece and other countries with longer histories of being democracies and having market economies.[38] As of May 1996, Slovenia had the following Country Credit Ratings : [39]
Moody’s Investor’s Service A3
Standard’s & Poor’s A
IBCA A-
In addition, according to Institutional Investors, Slovenia ranks 47th among 135 countries, with regards to potential areas for investment.[40]
Expenditure Policies and Assignments
In October 1995, the Parliament unanimously approved the 1996 draft budget presented by Slovene Prime Minister Janez Drnovsek. Expenditures are expected to be about 570 billion Tolars (about $5 Bill.).[41] A significant portion of the expenditures are allocated for health, education and infrastructure. Revenues for 1996 were expected to be 582 billion Tolars, about
46.5% of Slovenia’s GDP.[42] The surplus is allocated to cover the Pension and Invalidity Insurance Funds, this action preempts the expected expenditure of 42 billions Tolars in 1997 towards the Pension Fund which is a 20% increase from 1996.[43] One-third of the budget will be spent on Civil Servants salaries and contributions, much higher that the 1995, due to the desire to increase public employees salaries. Nearly 11 billion Tolars will be spent on subsidies to exporters for social welfare contributions, technological development, and for maintaining current levels of employment.[44] Although, there were no current figures available concerning defense expenditures figures from 1993 show 13.4 billion Tolars were allocated for the military, about 4.5% of the GDP.[45] Finally about four million Tolars are allocated for liabilities in international agreements to members of the Paris Club and commercial banks; this is a new item in the budget.[46] However, the current expenditures are being met by disapproval from the Slovenian businessmen, who wanted a budget for 1996 to be equivalent to the 1995 budget. This demand was not possible for Slovenia, as it tries to battle inflation, unemployment and provide for its’ citizens welfare.
Tax Structure and Administration
Intergovernmental Financial Relationships
Slovenia has had relative success with the administration and collection of taxes from its citizens and corporations at all levels of government.. Article 147 of the Constitution states very generally: " the state shall levy taxes, custom duties and other charges in accordance with statute. Local government bodies shall levy taxes and other charges in such circumstances as are determined by this Constitution and by statute."[47] This constant flow of funds has allowed the government to continue to provide needed services, as well as end several years, since independence, with budget surpluses. The country has tried to diversify the tax base, which has also added to the increased stability of the tax base.
Administration
The Slovene government is making extra efforts to insure successful implementation of tax policy. Slovenian tax administrators are taking part in the OECD’s multilateral tax network program which provides advice on taxation practice, policy and systems, with workshops for administrators in member countries such as Austria, Denmark, Hungary and Turkey. In addition, this program will evaluate the countries after the year is over, regarding their effectiveness in implementing tax policy. A key factor that has aided in the current implementation of the tax system is that the Slovenian Tolar is internally convertible, and therefore, foreign investors or business dealing can take place easily in foreign or domestic currency.
In 1997, Slovenia intends to unify the tax administration offices. Currently, there are two tax collection services, one for the companies and one for the individuals.[48] In addition, according to OECD, in the next two years there will be significant changes in the tax policy and administration in Slovenia.
Currently, the tax year runs from 1 January to 31 December, with tax returns to be filed by 31 March of the following year (15 April for a consolidated return).[49] In general, the system depends on self-assessment, however, if there is falsification of earnings or evasion of taxes, the government assesses heavy penalties.
The government, although requiring penalties for late payments is being realistic in the charges it assess for tardiness. A new act was passed in 1995, which reduced the late payment fees from 25% of amount owed to 18% on all public aged debt including income tax, sales tax and social security late payments.[50]
The tax administrators have developed a system which allows for advance payment of taxes and deadlines that apply to readjustment of taxes. Balances due on taxes must be paid five days after the annual return has been filed and if readjustments are made then the company has thirty days to make the payment.[51]
Corporate Tax and Incentives
As of 1995, the corporate tax rate was at 25%.[52] The republic has made a large effort to keep the business environment attractive to foreign investors. However, the rates were increased to 30% by 1996 and now legislation is trying to reduce the amount to 25% once again; the reduction in taxable income due to re-investment exemptions could make the effective rate 20%, if legislation goes through.[53] Slovenia continues to honor double taxation treaties signed by the former Yugoslavian government. In addition, a temporary tax exemption regarding capital gains derived from securities transactions has been extended to January 1, 1997.[54] "As of January 1, 1994, up to 20% of the amount reinvested in fixed assets(except for cars used for personal purposes) and long-term intangible assets is deductible from the investor’s taxable income, provided that the amount does not exceed the tax base."[55] The tax structure also provides for 30% deductions from taxable income for the first year if the corporation hires an unemployed or disabled worker.
"Taxable income is defined as gross income less expenses incurred in earning that income."[56] Some of the deductions include: 1) depreciation on fixed assets if it does not exceed set rates, with straight line depreciation being used only;[57] 2) interest if it does not exceed the average interbank interest rate; 3) sums contributed for future reserves for investment; 4) up to 70% for entertainment expenses; 5) losses may be only carried forward for five years.[58]
Furthermore, for corporation inventories are valued using the first-in, first-out method; last-in, first-out method; or the weighted average method.
Individual Tax
If one is a resident citizen of Slovenia, taxable income includes income world-wide, however, for non-residents only income earned within Slovenia can be taxed. The system does not provide for the taxation of families, only individuals; therefore, joint tax returns are not filled. The income tax is paid directly through the employer and is based on progressive rates for the income earned in the previous month.[59] (See Appendix XI) In addition, capital gains of real estate are taxable. After January 1, 1997, gains from sales of securities will also be taxable.[60]
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