Draft tax reform legislation would substantially eliminate social security contributions for employers and double them for employees. Employers currently pay 31.18 percent and employees 9 percent. The reform would see employers pay 1.47 percent and employees 19.5 percent.
The government argues that employees will still have equivalent or higher take home pay because the reform also requires that gross salary be increased by 28.9 percent to compensate for the shift in social tax responsibility, and it introduces a social security earnings ceiling for the first time.
In addition, the personal income tax system will transition from a single flat-rate of 15 percent to a two-tiered progressive income tax of 20 and 27 percent. The tax-exempt amount will increase for those earning above the minimum wage.
The draft law also proposes an automatic enrollment of employees under age 40 in the existing system of individual retirement accounts. Tax incentives would be introduced to encourage additional contributions to the individual retirement account from the employee and employer. If passed by parliament, the draft law would enter into force on 1 January 2019.
