Flat tax in Central and Eastern European Countries. A form of the positive tax competition?

Abstract

Even though, in its classical form tax system should supply first of all supply budget revenues (fiscal function), more than once it is burdened with other non-fiscal functions, e.g. with stimulation ones. Their nature is dependent on established of social-economy policy and influence the size of tax load. Frequently, in these situations it can appear tax competition issue, which means the moving taxpayers (private and legal persons) and capital to the countries with more favorable taxing. In Central and Eastern European countries, which still reforming their economies, there are also applied some number of instruments that are going to create friendly environment of the investments development and the economy growth at the same time. It is possible to consider as this instrument the flat tax construction, which is not practically executed in the tax systems of Western European countries. That form of taxing, with reference to income, has already come into force in many countries, e.g.: Estonia, Latvia, Russia, Lithuania, Slovakia, Ukraine and also partially in Poland from beginning of this year. These countries have justified the reform as a way of increasing the competition in searching of the new investments. The main aim of the paper is to present the proportional systems of taxing in Central and Eastern European countries and to prove, that the flat tax can be recognized as a form of the positive tax competition.