Czech PM Promises Tax Evolution, Not Revolution

by Ulrika Lomas, Tax-News.com, Brussels

28 August 2006

Incoming conservative Czech Prime Minister Mirek Topolanek has said that he will set aside his party's goal of introducing a flat rate of income tax, and has pledged instead to simplify the tax system.

In a recent interview with the Czech Hospodarske Noviny daily newspaper, Topolanek revealed that he wants to emulate much of the tax policy of Robert Fico, the Prime Minister of neighbouring Slovakia, who is seeking to dismantle the country's own 19% flat tax by introducing a two-tiered VAT system and extra income tax on high income earners.

"We are headed towards something that I would call reforms of Mikulas Dzurinda amended by Robert Fico minus a millionaire tax," Topolanek told the paper.

Corporate tax in the Czech Republic was reduced to 24% this year, and personal income tax rates are levied at progressive rates between 15% and 32%. The standard rate of VAT is 19% for most goods and services, with a 5% discounted rate for certain specified goods.

Originally, the centre-right Civic Democratic Party (CDP) had planned to follow the example of many governments in Central and Eastern Europe by introducing a 15% flat tax.

Topolanek was appointed as interim prime minister by President Vaclav Klaus as a first step toward forming a minority government following inclusive elections held in mid-June. However, the CDP will need the support of the left-of-centre Social Democrats, or CSSD, to pass a confidence vote scheduled for next month.

The CSSD are opposed to the CDP's tax plans.

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