Tax advice from Skopje

November 29, 2006

Free Market Foundation

The world just got a little flatter, says the Wall Street Journal. Macedonia’s new conservative government plans to scrap the 15 per cent corporate tax rate and 15 per cent to 24 per cent personal income taxes next year and replace them with a single 12 per cent rate. In 2008, that will come down to 10 per cent, matching Kyrgyzstan’s flat tax as the world’s lowest.

The government of 36-year-old Prime Minister Nikola Gruevski, an economist, expects that its flat tax will attract more foreign investors to Macedonia and help bring down unemployment, currently at about 36 per cent.

When a flat tax is introduced, it usually leads to economic growth and improvement of the finances of the country, cabinet minister Vele Samak told South East Europe Newswire.

If only such clear economic thinking were also commonplace in the newly elected U.S. Congress or among governments in Old Europe, says the Journal:

There the flat tax is demonised as another tax break for the rich that would increase budget deficits.

The economic success of Russia, Slovakia (third quarter growth: 9.8 per cent), Romania and other former communist countries with flat taxes is simply ignored.

Even the World Bank now says that simple and transparent taxes promote tax compliance and lead to higher revenues.

And it doesn’t get any simpler or more transparent than a flat tax.

If the countries on the other side of the former Iron Curtain want to remain competitive, they could do worse than ask Skopje for some tax advice, says the Journal.

Source: Editorial, Tax Advice From Skopje, Wall Street Journal, November 16, 2006.

For text (subscription required): http://online.wsj.com/article/SB116363123579924353.html

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

FMF Policy Bulletin/ 21 November 2006