Dzurinda promised to lower taxes when he campaigned successfully for reelection to a second term last year. The reform would represent a sharp reduction from personal income-tax rates that now run as high as 38% and from the current 25% levy on corporate profits. "People are saying: 'Wow, this is progressive tax reform,"' says Jake Slegers, executive director of the American Chamber of Commerce in Slovakia.
The government hopes the flat-tax regime will attract new foreign investors to Slovakia, which has only received about $8.5 billion in foreign direct investment since 1990. Another aim is to compensate existing investors for the tax breaks they will lose when Slovakia joins the European Union next year. The government hopes the reform will help keep economic growth -- 4.4% in 2002 -- humming along. It may also pressure neighboring high-tax states, such as the Czech Republic, to follow suit. Czechs currently pay up to 32% on their personal incomes, while Czech companies pay 31% on their profits. By Christopher Condon in Budapest EDITED BY Edited by Rose Brady