and in future a significant source of growth will be net exports. Both these sources of growth do not
directly lead to large tax incomes.
The tax measures approved in the first stage of the reform were predetermined by the effort to
consolidate public finances and by the requirement to harmonise tax legislation with EU requirements.
This stage started the reshuffle of the tax burden from income taxation towards indirect taxation, which
does not harm economic activity so significantly.
Summary of tax changes is as follows:
- Increase in indirect taxation
- VAT – transfer of goods and services from reduced into standard rate, reduction in the standard
rate from 22 to 19 % - Excises – rise in tax on mineral fuels, spirits and tobacco
- VAT – transfer of goods and services from reduced into standard rate, reduction in the standard
- Reduction in income taxes
- CIT – decrease in CIT rate, higher depreciations, increase in tax-deductible allowances for
donations in the area of Research and development - PIT – joint taxation for married couples, non-wasteable tax credit for a child
- CIT – decrease in CIT rate, higher depreciations, increase in tax-deductible allowances for
- Higher taxation of self-employed
- Broadening of the assessment basis for state social support, introduction of minimum assessment
basis for PIT and state social support.
- Broadening of the assessment basis for state social support, introduction of minimum assessment
The tax changes are directed to the reinforcement of indirect taxes that are compensated by a fall in
income taxes. The changes were introduced in two stages. The first stage was designed with the regard
to the obligation of the Czech Republic to harmonise its tax legislation with the appropriate EU
directives and at the same time it contributed to a reduction in the public finances deficit. On the other
hand, the second tax package is perceived as an instrument of structural reforms and strives to promote
potential growth in the Czech economy.
The second stage of the reform is aimed at the acceleration of economic growth (strengthening of the
supply side of economy). These measures reduce effective taxation of corporate profits and are achieved
by the acceleration of depreciations and by an increase in R&D allowance.
Accelerating character of long-term GDP growth can be influenced by the support of families with
children. The abolition of child allowance and its replacement by tax credit, including tax bonus, is to
have a positive impact. The resulting financial benefit should be stimulating to a more active
participation in the labour market. With the same effect the joint taxation of married couples was
introduced.
These measures enhancing economic growth will be financed by an increase in indirect taxes. The
majority of goods and services previously taxed by the reduced VAT rate became taxed by the standard
rate. Only socially sensitive items are excluded from the standard VAT rate.
Alongside fiscal consolidation, one of the main current challenges in the area of economic policy is the
need to create suitable conditions for doing business and for the functioning of the labour market. These
areas are crucial for accelerating potential growth, enhancing the competitiveness of the Czech
economy and thus providing for faster convergence of the Czech Republic.
Increasing flexibility in the supply side of the labour market is being pursued by the new Act on
Employment. The most important changes include:
- the creation of institutional framework allowing for the successful functioning of private labour
agencies