Personal income tax Flashcards
% of employer SSC in Slovenia
16.1% of gross wage
% of employee SSC in Slovenia
22.1% of gross wage
define the tax base of PIT
tax base = taxable income = income, subject to tax - SSC - standardised costs - exemptions and allowances
cite two definitions of income, subject to tax
- income, subject to tax = income from labour (E) + income from capital (rW) + income from other sources (A)
Y = E + rW + A - haig-simons: income = uses of money during the year (SSC, income in kind) + increase of net wealth (pension, insurance contributions and capital gains)
Y = C + ΔNW
what is income in kind?
income in forms that are not money. Eg. public scooling, toll-free roads, employee benefits etc.
what are two types of PIT?
comprehensive (all kinds of income are taxed together) and schedular (labour income is taxed progressively and capital income is taxed with a flat rate)
how is PIT collected?
either withholding it (employers withhold a part of salary and pay PIT directly to the gov) or with a final holding tax (at the end of the year, everything is paid)
what is tax wedge in case of PIT?
= labour cost - net wage
What is a tax expenditure?
loss of tax revenue due to an amount being excluded/exempt from the tax base
why is the change from a progressive rate to a flat one so hard? where is a progressive tax rate used? why is a flat rate better?
(flat rate = proportional rate)
when changing from progressive to flat, 80% of tax payers would have to pay more than what they currently do -> doesn’t pass.
progressive tax rate is used in SE Europe.
flat rate applies the same marginal tax rate to everyone and increases equity. it is simpler and reduces incentive to cheat. however, it does shift the burden from the rich to middle class.
what is generally the most frequently used tax relief? what is the problem with how it was done in Slovenia?
general allowance.
we had the ‘reverse’ slice system, which was a problem because the allowance would drop for 2k if you earnt 1€ more - it would increase your tax base for 2k. It should have a diagonal part between the two ‘extremes’.
what is the second most frequent tax relief?
child allowance. with more kids, they add together (more kids, more money). generally, it is best for the parent with the higher income to take the allowance.
