INITIAL EFFECTS FROM THE PERSONAL INCOME TAX (progressive tax, increased tax rates)
➢ News (15.10.2019)
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INITIAL EFFECTS FROM THE PERSONAL INCOME TAX (progressive tax, increased tax rates)

- The Law on Personal Income Tax, adopted at the end of 2018, which replaced the Law on Personal Tax on Income, introduced progressive taxation through the personal income tax, namely, on the work earned income, from independent activity, from copyright and related rights and from sale of personal agricultural products. The income tax is paid at progressive rates, namely: for income of up to 1,080,000 denars – 10% (90,000 per month), and for the income over this amount +18%. Concerning the income from industrial property rights, from lease and sublease, from capital, capital gains, lottery winnings, from insurance and other income, the tax increased from 10% to 15%, - informed Aneta Dimovska from the Economic Chamber of Macedonia at the press conference.

Before the Law was adopted, the economic chambers, based on previous analyses, unanimously agreed that:

1. The positive effect from introducing progression on budget income will be by far smaller than the negative effects that will reflect on the entire business environment;
2. Increasing the rates might mean sending a negative signal both to the domestic and the foreign investors and losing the comparative advantage and image of a low tax country;
3. Increasing the rates and increasing the tax burden will stimulate the tax evasion;
4. The economy will certainly be affected by the proposed changes, for example, the information and communications sector.

The impact of the tax amendments through personal income tax on the budget income was pointed out at the press conference in the Chamber. Namely, in the first seven months of 2019, an income of 10,313 million denars was generated from the personal income tax, which compared to the same period in 2018, generating 8,895 million denars, is an increase of 16.0%. – If we analyze the income based on which income is taxed, the greatest increase of collection of 62.9% in the first seven months of 2019 can be found with the income from property and property rights (lease and sublease), followed by the income from agriculture and forestry – 62.7%, - indicated Dimovska.

Although the growth of 9.4% of the income on the basis of the work earned income (wages and other personal earnings) is relatively low compared to the growth of the other types of income, it is exceptionally significant since its participation in the total income from personal income tax is approximately two thirds. In the first seven months of 2019, an additional 1,418 million denars of income have been generated on the basis of the work earned income. From the publically available data, we cannot determine how much of the growth is due to the introduction of the additional tax rate of 18%, and how much can be attributed to the growth of wages and employment.

- The income growth on the basis of the personal income tax from capital is 3.5%, and the income tax from capital gains shows a drop in collection of -37.7%, - informed Aneta Dimovska.

The Economic Chamber of Macedonia conducted a survey among its members in the beginning of September 2019, with the aim of considering the initial conditions and implications of the introduction of progressive tax and the increase of the tax rates from 10% to 15% for certain personal income categories in the first semester of 2019, and assessing the effects from the introduction of the progressive tax. During the survey, responses from different activities have been received, with the largest participation of companies from the industry, construction, computer science and programming, metallurgy, energy, hospitality and tourism and the municipal activity.

From the acquired data, it was determined that from the total number of respondents, 51% of the firms responded that the introduction of the progressive tax with a rate of 18% does not have an impact in regard to increasing the operational costs, nor prompts a change of their business decisions. These responses are acquired from companies from the sectors: construction, manufacturing industry, water supply, wastewater disposal, waste management and environmental rehabilitation and firms in the TDIZ (the tax expenses are part of the approved state assistance).

The key reason why the change in the tax policy does not affect these sectors is the lower wages in those sectors (in the manufacturing industry the average monthly wage I-VII 2019 is 20,624 denars, and in construction 22,728 denars). Certain firms pointed out in their survey responses that they do not have increased wage expenses despite the increased tax rate, because their salaries are defined in gross amount, whereupon the increase burden is imposed on the net-wage of the employees.

In the firms, which responded that the increase of the tax rate and the introduction of the progressive tax affect the increase of the operational costs, 65% of them responded that they have increased expenses on the basis of the work earned income tax (wage expenses). According to sectors the increase is:
- over 5% in the service activities regarding the information technology and computers, computer programming, consulting and informative service activities;
- in the financial activities and insurance activities from 1.5% to 15% and
- 3% in the service activities related to the aviation transport.

Additionally, the firms have increased expenses for tax on the basis of:
- lease and sublease (6%-90%);
- industrial property rights (5%-20%);
- copyrights and related rights (6%-15%);
- income from independent activity (3%-10%).

According to the survey conducted in the Chamber, 23% of the total number of surveyed firms stated that the increase of the rates of the personal income tax brought on changes in their business decisions toward delaying planned activities on renovation of facilities, decreasing the expenses by decreasing the number of employees and increasing the prices of the services due to the increased expenses for wages and outside associates, which is especially evident in the ICT sector.

Presentation, INITIAL EFFECTS FROM THE PERSONAL INCOME TAX (progressive tax, increased tax rates)

Aneta Dimovska, M.Sc.