Czech Government To Raise Taxes To Pay For Flood Damage

by Ulrika Lomas, Tax-News.com, Brussels

05 September 2002

The cost of repairs in the Czech Republic after the worst flooding in 100 years is likely to exceed US$3bn, and the government has been forced to prepare an emergency package of tax reforms to raise some of the cash, especially since it has promised that its planned deficit of CZK157bn (US$5bn) will not be exceeded.

The three-party coalition government reached agreement earlier this week on a package to raise up to CZK10bn, which includes an increase in the top rate of personal income tax from 32% to 35%, and upward adjustments to excise taxes on tobacco and alcohol, as well as some selective changes to VAT. As a sop to centrists and right-wingers in Parliament, the rate of corporation tax will be reduced from 2004 to 28% from the current 31%.

The package will have to be approved by Parliament, where the coalition holds only a slender majority. The government is made up of members from the left-wing Social Democrats, along with members of the centrist Christian Democratic party and the right-wing Freedom Union. Although the coalition has only a one-seat majority, it might win support from a few far-left Communists who would favor the higher personal tax rates.

Acting chairman of Freedom Union, Ivan Pilip, told Dow Jones Newswires in an interview that the agreement is the best possible compromise at a difficult time. "It will not be such a problem in parliament," he said. "I think it's a done deal."

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