Commission Report 2002 (Slovakia)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 29: Financial and budgetary provisions

Progress since the last Regular Report

Slovakia has made some progress in this area since the last Regular Report.

Further progress has been achieved concerning the national budget and EC co-financed measures. An amendment to Slovakia's framework budgetary legislation, the Act on Budgetary Rules, was approved by the Slovak Parliament in June 2002 and provides for important new measures in the area of financial relations between the state budget of Slovakia and the general budget of the European Communities. The revised Act will ensure that EC funds receive from accession the same treatment as state budget revenue and that these funds are monitored, controlled and reported on in line with established Community procedures.

The revised Act on Budgetary Rules also introduces multi-annual budgeting in Slovakia with effect from January 2003, and provides the legal base for the transfer of Slovakia's contributions to the EC own resources as of accession.

The Ministry of Finance has started a reform of budgetary procedures and public expenditure management in order to make further improvements. The reform is concentrated on central financial control, the management of state budgetary expenditure, and familiarisation with budgetary requirements related to Slovakia's accession to the EU. The number of extra-budgetary funds has been reduced to just two, compared with eighteen two years ago.

As regards the own resources system, some further progress can be noted. In January 2002 an Act on the Market Organisation in Selected Agricultural Products entered into force. Although currently there are no procedures for the collection of sugar levies, these will be introduced in 2003 on the basis of this new Act.

An amendment to Slovakia's Value Added Tax Act became effective from January 2002, further aligning with EC legislation by adjusting the currently applied tax deductions and excessive deductions refund. For the purposes of calculating the GNP resource, further progress was made with the new State Statistics Act, which entered into force in January 2002 and provides for further harmonisation with the ESA-95 standards. A third and final phase of implementation of ESA-95 methodology in the national accounts is currently under way.

As regards the administrative capacity necessary to co-ordinate financial relations with the EC, the co-ordinating Unit in the Budget Section of the Ministry of Finance has been strengthened through the recruitment of extra staff and ongoing staff training.

Overall assessment

The legal framework for budgetary management and for the transparency and efficiency of financial flows to and from the EC budget is largely in place. Regarding medium-term budget expenditure, all programming and monitoring mechanisms, including co-financing, have been established. The integration of the medium-term financial outlook into the 2002 budgetary process is a positive step in this context, as is the ongoing reform of budgetary procedures and public expenditure.

Overall preparations for application of the acquis on own resources are progressing well, although there is room for further improvement.

As regards traditional own resources, Slovak customs legislation is already largely in line with the EC acquis and being applied in accordance with the EC Customs Code and its implementing provisions. However, for the purpose of own resources, Slovakia needs to develop its reporting system on cases of fraud and irregularity, and certain other reporting and accounting requirements (the `A' and `B' accounts) still need to be set up in time for accession. Also, the systems and procedures necessary for sugar levies are not yet in place. Slovak law does not currently include any provisions requiring that producers of sugar, isoglucose or insulin syrup pay levies on sugar production, nor has an entity been identified to carry responsibility for levy collection.

As regards VAT, as a result of the most recent legislative amendments that came into force in January 2002, Slovakia has achieved a good degree of alignment, although a number of issues remain to be tackled. For the purposes of own resources, considerable efforts are required in order to be able to calculate the weighted average rate (WAR) in accordance with ESA-95 and to determine the impact on the VAT base of any special arrangements agreed under the Taxation Chapter. Slovakia should continue to participate in the VAT simulation exercise, which is the key tool for effectively testing Slovakia's capacity regarding the VAT resource. Sustained efforts are also needed to improve the actual collection and control of VAT.

As regards the GNP resource, Slovakia's statistical system is largely in line. Slovakia should continue implementation of the ESA-95 concept, with the ongoing process of quality and methodology improvements in the calculation of GNP and the national accounts, including enhancing their exhaustiveness.

As regards administrative capacity, all the institutions necessary for applying the own resources system already exist, except for sugar levies. A permanent co-ordinating unit within the budget section of the Ministry of Finance has been in existence since March 2001. This unit is currently co-ordinating the establishment of the necessary procedures, infrastructure and capabilities to fulfil the administrative conditions in the area of own resources and will co-ordinate from accession the calculation, control and payment of own resources and contacts with and reporting to the Commission in this area. Although it currently has only three staff members, it has been decided that three additional officials will be recruited to cover respectively each type of own resource. Two further officials will be recruited to cover own resources issues in the Ministry of Agriculture and Statistics Office respectively. Such capacity-building will be particularly important in view of the required improvements referred to above and this unit's planned responsibility for the final calculation of the VAT base, based on data submitted by the Statistical Office and the Tax Directorate.

With regard to the control of future EC own resources, Slovakia should continue its efforts to set up effective instruments to combat VAT and customs duty fraud so that the financial interests of the EC can be protected.

In addition to the need for central co-ordination for the proper collection, monitoring and payment of funds to and from the EC budget, administrative capacity should be strengthened in the context of the relevant policy areas described elsewhere in this report, such as Financial Control, Agriculture, Customs, Taxation and Regional Policy.

Conclusion

In its 1997 Opinion, the Commission concluded that, in order to ensure that own resources were established, monitored and made available in line with Community regulations, Slovakia would have to overhaul its existing customs system. Furthermore, for the purposes of accurately calculating the GNP resource, considerable improvements would have to be made to the national accounts to ensure that they were reliable, homogeneous and complete. The Commission added that improving the statistics would also be essential for drawing up the VAT own resources base, which would mean bringing Slovakia's VAT system fully into line with the Community directives.

Since the Opinion, Slovakia has made considerable progress in these areas, in particular as regards the alignment of its customs system and progress in applying the ESA-95. Overall, the legal framework for budgetary management and for the transparency and efficiency of financial flows to and from the EC budget, as well as the administrative structures are largely in place.

Negotiations with Slovakia on this chapter are ongoing. Slovakia is generally meeting its commitments made in the accession negotiations.

In order to complete preparations for membership and to ensure the capacity to establish properly and make available the country's contribution to each of the own resources of the Communities, Slovakia's efforts now need to focus in particular on improving its calculation of the VAT base and guaranteeing the exhaustiveness of the national accounts for determining the GNP resource, together with completing the implementation of the ESA-95 methodology. Also, the responsible service needs to be designated and the necessary procedures established for collecting sugar levies.

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