20230309-IMF-Republic_of_Slovenia_Technical_Assistance_Report-Revenue_Administration_Gap_Analysis_Program-_Corporate_Income_Tax_Gap_39页_1mb

Summary of the Corporate Income Tax Gap Analysis in the Republic of Slovenia

Core Content

This technical assistance report, prepared by the International Monetary Fund (IMF) in February 2023, provides an analysis of the Corporate Income Tax (CIT) gap in the Republic of Slovenia using the IMF's Revenue Administration Gap Analysis Program (RA-GAP) methodology. The report aims to assist the Slovenian Financial Administration (SFA) in strengthening corporate income tax administration by evaluating the compliance gap through a top-down approach based on macroeconomic data.

Main Features of CIT in Slovenia

• Tax Rate: The CIT rate was 20% in 2011, dropped to 18% in 2012, 17% in 2013, and remained at 17% until 2016. It was then increased back to 19% in 2017 and has remained at that rate since.
• Tax Base: The tax base is determined by adjusting financial accounting profit/loss for permanent and temporary differences. Taxable capital gains are added to other business income.
• Coverage: Legal entities operating in Slovenia are liable to CIT. Resident entities are taxed on worldwide income, while foreign entities are taxed only on Slovenia-source income.
• Exemptions: There are no exemptions for CIT.
• Losses: Tax losses can be carried forward but not carried back. There are restrictions on changes in ownership.
• Tax Period: The tax period depends on the company’s financial year end, which usually aligns with the calendar year.
• Advance Payments: Monthly advance payments are made based on a preliminary tax assessment.

Revenue Performance of CIT

• The CIT revenue to GDP ratio has been lower than the European average for most of the past decade, though it has been increasing.
• In 2019, Slovenia's CIT productivity was 0.37%, compared to 0.61% for the European average.
• The CIT productivity has been rising since 2017, and the regional average has also increased during this period.

The Estimates

A. The GOS Gap

• The GOS (Gross Operating Surplus) gap is the difference between potential and assessed GOS, derived from national accounts and tax declarations, respectively.
• The GOS gap for non-financial corporations has shown a slight decline over the period, with a sharp increase in 2020.
• The gap is primarily concentrated in the manufacturing sector, particularly in the motor vehicles and vehicle parts sector (C5), and also has significant contributions from the trade sector (G).

B. Actual vs Potential CIT

• Assessed CIT for non-financial corporations has shown an overall increasing trend, while potential CIT trends were relatively flat until 2017, after which the absolute method showed greater potential growth.
• The compliance gap is composed of both the assessment gap and the collection gap.
• The assessment gap is the difference between assessed and potential CIT, while the collection gap is the difference between assessed and actual CIT.
• The report uses the absolute and relative methods to estimate potential CIT, with the absolute method assuming under-declaration of income and the relative method assuming non-reporting. The compliance gap is estimated by averaging the results from both methods.

C. The Compliance Gap

• Due to the lack of data on accrued revenue and arrears, the full compliance gap cannot be estimated; only the assessment gap is calculated.
• The assessment gap is estimated to have increased in 2012 and then declined back to 2011 levels, with a notable divergence in 2020.
• The report highlights the need for better data on accrued revenue and arrears to improve the accuracy of compliance gap estimates.

Key Observations and Next Steps

Observations

• The assessment gap is largely concentrated in the manufacturing sector.
• The compliance gap may be influenced by both changes in taxpayer behavior and volatility in economic activity.
• The 2020 divergence in the assessment gap could be due to the impact of the pandemic and related government policies, such as deferral of CIT payments.
• There are concerns about the accuracy of the GOS gap estimates due to possible misclassification of sectors and blending of operating and capital costs in tax declarations.

Next Steps

• More Detailed Statistical Data: Better sector-level data on GOS and CIT would improve the accuracy of the estimates.
• Improved Sector Classification: The classification of activity codes and institutional sectors should be reviewed and standardized.
• Better Accounting for Accrued Tax Arrears: The authorities should develop a more accurate method for accounting for accrued tax arrears.
• Complement with Bottom-Up Approach: A bottom-up method using audit data is recommended to complement the top-down RA-GAP approach.
• Enhance Internal Knowledge: Combining top-down and bottom-up results with internal knowledge about taxpayer compliance will strengthen compliance risk management.

Conclusion

The RA-GAP methodology provides a useful framework for estimating the CIT gap in Slovenia, highlighting the need for improved data collection and analysis. The report underscores the importance of addressing sector-specific issues, particularly in the manufacturing and trade sectors, and recommends a multi-pronged approach to better understand and manage the compliance gap in the corporate income tax system.