FACTBOX-Main proposals for Czech tax and spending overhaul

...aimed at cutting the budget deficit towards 3 percent of GDP in 2008 from 4 percent seen in 2007.

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Topolanek has said [ID:nL26490240] his government would revamp taxes and social spending to prevent the 2008 state budget deficit doubling to 180 billion crowns ($8.59 billion) from this year's target level.

The following are selected proposals which have been floated by officials, as reported by Czech media:

INCOME TAXES:

- Flat 15 percent tax rate on all personal income from 2008 to replace the progressive tax brackets with 12 percent as the bottom rate for low-income earners and 32 percent as the top one for high-income earners;

- Personal income tax base to be broadened to include social security and health insurance contributions paid by employers for their workers which are now equal to 35 percent of gross wages;

- Personal income tax deductions and breaks to be revamped with the aim of making the flat tax regime beneficial to both low- and high-income earners;

- Personal income in excess of four times the average wage to be exempted from social security and health insurance taxes;

- Original plan was to have corporate income tax rate to gradually fall to 19 percent by 2010 from 24 percent now;

- Lower the number of corporate tax exemptions to counterbalance the impact of the reduced tax rate on the budget.

VALUE-ADDED TAX:

- Lower, preferential value-added tax (VAT) rate -- levied on foodstuffs and selected goods and services -- to rise to 9 percent from current 5 percent [ID:nL17647670];

- Higher, base VAT rate to remain at 19 percent.

SOCIAL TRANSFERS:

- Next year's budget should aim to save 22.8 billion crowns by cutting spending on welfare benefits and sickness insurance [ID:nL20721636];

- Plan has been to cut expenditure on maternity benefit by 7.6 billion crowns and on sickness insurance by about 6.5 billion, shave nearly 2 billion off child benefits, and save additional money on parental contributions;

- Automatic indexing of benefits should be abolished.

($1=20.95 Czech Crown)

Keywords: CZECH REFORMS/