As previously reported, the new Czech coalition government is considering an ambitious public finance and tax reform. On 3 April 2007, further details on these reform plans, summarized below, were announced.
Corporate income tax
The government plans to reduce gradually the corporate income tax rate (currently, 24%) to 22% in 2008, 20% in 2009 and 19% as of 2010, with the aim to promote the inflow of foreign investment into the Czech economy. The reduction in the corporate income tax rates is also a reaction to increasing tax competition within the region.
Personal income tax
The government announced its plans to introduce a 15% flat personal income tax rate that would replace the progressive rate ranging from 12% to 32% to eliminate tax evasions and support the companies employing highly qualified personnel. It is also proposed that the exemption of social security and health insurance contributions would be abolished in respect of employment income.
In addition, the government plans to increase the basic personal tax credit from CZK 7,200 to CZK 24,840 and the credit for a dependent child from CZK 6,000 to CZK 10,440. The credit for a dependent spouse would be increased from CZK 4,200 to CZK 24,840. The amounts of other tax credits that can be claimed by individuals would also be increased.
Finally, the government would abolish the minimum tax base for taxpayers with business or professional income (CZK 120,800 for 2007).
Although the government would maintain two rates of VAT, the lower rate would be increased from 5% to 9%. Certain environmentally friendly items would be subject to the lower rate of VAT.