Wednesday, November 15, 2006

Macedonia leads the way in east with promise of lowest ‘flat’ tax

Macedonia will become the 10th eastern European country to adopt a flat-rate tax next year, in a move which will highlight Britain’s increasingly high levels of tax and spending.

The Macedonian government will introduce a single rate of income and corporation tax of 12% in 2007. It then plans to lower both to 10% by 2008 to attract more foreign investment and reduce tax evasion, according to the country’s finance ministry.

The new flat rate would replace a corporate tax of 15% and personal income tax ranging from between 15% and 24%. The tax on reinvested profits will be scrapped and there will be a significant zero-taxed personal allowance.

A government statement said: “This step should decrease tax evasion and stimulate taxpayers to meet their obligations to the state. It would also encourage foreign investors to put their money in Macedonian businesses, knowing that taxes are low.”

The most recent country to introduce a flat rate was Romania, last year. The other eight countries to operate such a system are Estonia, Lithuania, Latvia, Russia, Serbia, Ukraine, Slovakia and Georgia.

Until now, Georgia boasted the lowest flat tax at 12% but Macedonia’s move will give it the most competitive rates from 2008. The reform will also put pressure on neighbouring countries, including Greece, Albania and Bulgaria, to follow suit.

Supporters of flat-rate taxes believe that they boost economic growth by improving incentives to work, invest and save; by cutting tax evasion; by reducing bureaucratic costs and by attracting global financial and human capital.

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