Slovak economy ministry mulls over tax incentives for automotive companies

The economy ministry is considering the options for finding room for tax incentives for the car makers, economy minister Peter Ziga (leftist senior ruling party Smer-SD deputy head) said. He noted that the ministry has prepared a number of measures to stabilise the business environment so that it can be more predictable and to facilitate car makers to meet the new requirements of the car market. Ziga said that the economy ministry, together with representatives of the automotive industry, have identified several barriers which are related to the changes in the business environment and which, from the short-term as well as from the long-term perspectives, worsen the conditions for sustainable competitiveness of the Slovak automotive industry not only of final producers but mainly of suppliers. According to the ministry, there is a risk that, because of these barriers, projects of some producers to be gradually transferred to neighbouring countries and the acquisition of new projects for existing production capacities will be jeopardised. Thus, the ministry identifies and proposes solutions to the three barriers, namely instability and non-systemic development of the business environment with a direct impact on rapid and unpredictable growth of costs; the low level of R&D activities, of the development of applied science, research and innovation and networking of participants; as well as an insufficiently developed environment for the application of circular economy principles in the automotive industry. The government suspended the discussion on the draft measures to remove barriers to the sustainable development of the automotive industry, including the supply network, but Ziga is convinced that the cabinet would discuss the proposal at its next session.

The automotive industry is a key sector of the economy that affects the development of several industries. It currently employs more than 130,000 workers and directly or indirectly affects the creation of more than 250,000 jobs. It generates 44% of GDP from industrial output and as it has a 40.2%-share in exports, it significantly contributes to Slovakia’s positive trade balance. Yet, as we have argued before, the economy is excessively exposed to a single sector that makes it vulnerable to its development. So, we believe that diversification of the economic structure should be the focus of the economy ministry instead of providing tax incentives to it. On the one hand, this measure, if approved, would additionally burden the budget that is likely to be burdened by the tax and levy burden reduction measures of the ruling coalition parties (also nationalist SNS and centre-right ethnic-Hungarian Most-Hid) due to be discussed by the Coalition Council and by the parliament during its May session. So, the attainment of the plan for a budget at a slight surplus next year could be put into jeopardy. On the other, introducing tax incentives for the car makers, possibly also for the related companies, would contribute to an additional increase of the car industry’s concentration while discriminating other sectors that have the potential to create high value added and highly-paid jobs, in our view.

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