AmCham Macedonia Summer 2018 (Issue 58) - Page 26

AmCham News & Events Summer 2018 / Issue 58 Position Statement on the Potential Introduction of Progressive Taxation of Personal Income O n July 23, AmCham’s Executive Director Dijana Despodov and Veton Qoku, Lawmak- ing and Implementa- tion Committee coordinator, together with representatives of Macedo- nia2025 and MASIT – the IT Chamber of Commerce, met with the Minister of Finance, Dr. Dragan Tevdovski, to present our position on the potential introduction of progressive taxation on personal income. The recent announcement for the possible introduction of progressive taxation on personal income took the private sector by surprise and raised a lot of concerns. Both domestic com- panies and foreign investors are wor- ried about the impact this measure will have on the economy, such as increased tax evasion and expanded grey economy, capital outflow and reduced investments, increased brain drain, and disincentivized skilled staff.  Moreover, such isolated measures will not achieve the desired goal of filling the state coffers and achieving social equality. What is needed is a comprehensive tax reform that would consider all sources of income and focus on collecting existing taxes, while carefully analyzing the possible ripple effects and consequences to the economy.  The American Chamber of Com- merce in Macedonia - AmCham Macedonia, Macedonia 2025 and the Economic Chamber of Informa- tion and Communication Technol- ogies - MASIT, as representatives of the views and opinions of more than 200 of the largest and most innovative companies in Macedonia, present the following arguments on the impact the introduction of such taxation would have on the economy. 26 AmCham Macedonia Magazine 1. The proposed measures will not achieve the desired effect of improving social equality; on the contrary, it will reduce pro- ductivity, employability and the development of a highly qualified workforce: It is unclear how the addi- tional funds raised by increasing the personal income tax will be allocated - will they be used directly to improve social inequality or will they be used for general expenitures? In case they are used for general expenditures, the effect will be annulled because funds from the same budget are used to subsidize the private sector. If they are used directly to improve social inequality and, as announced by the Minister of Labor and Social Policy Mila Carovska, are used to increase the amount of social welfare to 12,000 denars per month for a family of four, then such a mea- sure will lead to the following: Increased unemploy- ment rate- if the amount of social welfare equals the minimum wage, workers who receive a minimum wage will prefer not to work and to collect social wel- fare rather than work for a minimum wage, which will increase the unemployment rate and additionally drain the budget. Reduced productivity and employability – the proposed taxation penalizes the part of the population that works hard towards skills development and higher incomes and rewards those who do not put in a lot of effort and it might lead to discouragement and decreased productivity. Disincentivized skilled per- sonnel - increasing the per- sonal income tax will mostly affect those who have invested in their professional develop- ment, sending a message that gaining additional qualifications is not worthwhile and eliminat- ing the incentive for developing skills and competencies. AmCham News & Events Summer 2018 / Issue 58 over compliance will ultimately increase the costs of the Public Revenue Office. 3. 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