Czech Republic May Return To Flat Tax Plans

by Ulrika Lomas, Tax-News.com, Brussels

03 January 2007

Ahead of planned elections in the Czech Republic, a centre-right coalition of three parties has dusted off plans for a flat tax which were abandoned by last year's minority government in the face of opposition from the Social Democrats.

The representatives of the Civic Democrats, the Christian Democrats and the Greens said after Christmas talks that they would introduce a 17% to 19% flat tax if they win the elections, to apply both to companies and to individuals.

Elections are necessary following abortive talks in December on a unity government between the Christian Democrats and Social Democrats.

Corporate tax in the Czech Republic was reduced to 24% last 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.

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

In an interview with the Czech Hospodarske Noviny daily newspaper, Topolanek revealed that he wanted 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.

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

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