The enactment of the Act on Amendments and Additions to the Tax Procedure Act, Amendment No. ZDAVP-2G in 2013, has brought about a significant change and at the same time a tightening of the taxation of undeclared income and income of unknown origin. The legislator has dedicated a separate provision to the taxation of unreported income of natural persons, now Article 68a ZDAVP-2, and for the first time referred to the tax as a tax on unreported income. An innovation has also been introduced with regard to the period of taxation. The period of taxation has been extended from five years to ten years. One of the key changes was an increase in the rate of taxation by 70%. This is the highest personal income tax rate in Slovenia's history.
In my master's thesis, I found that individuals who were assessed by the tax authorities as much as 70 per cent of the tax on their undeclared income were in an unequal position before the law compared to those who fulfilled their legal obligation on time. I find that this is a violation of the principle of equality before the law, in accordance with Article 14(2) of the Constitution of the Republic of Slovenia.
In the course of the analysis of cases of de facto taxation at the 70% rate, in conjunction with the statutory bases and the administrative, legal and judicial practice, I have considered the consequences of such taxation from the point of view of the protection of the rights to private property and inheritance under Article 33 of the Constitution of the Republic of Slovenia. The decision of the Constitutional Court regarding the constitutionally controversial 70% taxation of individuals is discussed through the analysis of practical cases. In the past, the Constitutional Court has taken the view that exceeding the 50% level of taxation constitutes an interference with the right to private property. By conducting individual interviews, I also obtained critical responses from individuals who are in various ways related to the topic at hand on the questions raised and the overall subject matter.
The combined analysis of the practice and theory of the topic under discussion has revealed that the actual intention of the legislator when introducing the 70% tax rate was, however, punitive in nature. It is likely that the real interest in introducing such a high rate was primarily to prevent individuals from repeating such undesirable behaviour. Unfortunately, however, this type of taxation at this rate has also led to severe consequences on the part of individuals. At the same time, following the decision of the Constitutional Court in 2020, the tax authorities have, in repeated proceedings, repaid large amounts of tax paid, together with interest, which has placed a heavy burden on the budget. The findings of the analysis and the examination of actual practice have shown once again that the purpose of tax legislation should not and cannot be punitive, since this area is reserved for criminal and penal legislation.
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