168 Hours: On One Hand, Taxes are Reduced, on the Other, Conditions are Created for Price Increases

According to the "168 Hours" newspaper, as already known, among the tax "reforms" that came into force on January 1, 2020, is the reduction of income tax rates. According to this change, henceforth, regardless of the salary amount—be it high or low—everyone will pay a flat 23% income tax. This change will, of course, not affect 65% of wage earners, that is, about 390,000 people, since previously those earning up to 150,000 drams monthly had already paid 23% of their salary in income tax in 2019.

The impact of this change will be noticeable only for those earning between 150,000 drams and 2 million drams, who had previously been paying 28% of their salary in income tax, and even more significantly for those earning over 2 million drams, who had been paying 36% of their salary in income tax. In fact, the collection of a flat income tax means that, for example, someone with a salary of 500,000 drams will receive 17,500 drams more after taxation, while no additional amount will be added for the 390,000 individuals earning up to 150,000 drams.

As a result, more favorable conditions are already being created for those with higher salaries. Setting aside the fairness or unfairness of taxing high and low earners at the same rate, it should be emphasized that among the hidden changes included in the tax "reforms" that came into force on January 1 are two significant amendments: the change in pension system contributions and the adjustments to excise duties and state fees.

These changes will negatively impact the very 390,000 people who earn up to 150,000 drams monthly. Why? Alongside the gradual reduction in income tax, there will be an increase of 1% per year in the mandatory cumulative pension system contributions, which should reach 5% in 2023, up from the current 2.5%. This change implies additional deductions from salaries.

On the other hand, the government is adopting a mechanism to compensate for tax revenue losses by increasing excise tax rates and certain state fees. Notably, the increase in state fee rates has been applied since January 1 for various types of licenses related to financial activities, which may lead to a domino effect, resulting in an increase in the prices of services and products provided by these organizations.

Regarding the increase in excise tax rates, it has been applied to the production of vodka (except for those made from fruits and berries), beer, IQOS technology cigarette products, and ethyl alcohol. This will also result in higher sales prices for these products, directly affecting the wallets of consumers.

So, what does this mean? The tax "reforms" implemented by the government resemble more of a bear service: on one hand, they do not collect, and on the other, they create favorable conditions for the price increases of goods and services.

For more details, refer to today’s issue of the newspaper.