REFILE-FACTBOX-Key points of Czech fiscal reforms

...

The Czech lower house of parliament approved on Tuesday a fiscal reform package rebalancing taxes and cutting welfare, aimed at lowering the country's budget deficit.

The government aims to cut the budget gap, calculated under European Union rules, to 2.5 percent in 2010 from 4 percent seen this year, through the reforms and additional measures.

The following are selected proposals included in the package, which still has to be approved by the upper house of parliament but is likely to meet little resistance there.

For the main news story, double click on [ID:nL2138103].

INCOME TAXES:

- Flat 15 percent tax rate on all personal income from 2008 to replace current system of progressive taxation with brackets from 12 percent to 32 percent. Tax rate would fall to 12.5 percent in 2009 but tax deduction would probably rise.

- Personal income tax base to be broadened to include social security and health insurance contributions paid by employees and by employers for their workers. The portion paid by employers now is 35 percent on top of gross wages. The 12.5 percent rate will be equal to about 19.4 percent if current tax base is used.

- 'Tax abatement', sum to be automatically deducted from taxes, will be raised to 24,840 crowns next year from 7,200 crowns, but will fall again to 16,560 as of 2009.

- Changes will mean savings for high earners and low earners.

- Corporate income tax rate to fall to 21 percent next year, 20 percent in 2009 and 19 percent in 2010, from 24 percent now.

- Cancellation of dividend, capital gains and property transfer taxes will be considered in the next reform stage for 2009 or 2010.

VALUE-ADDED TAX:

- Lower, preferential value-added tax (VAT) rate -- levied on essential items such as foodstuffs and medicine and other selected goods and services -- to rise to 9 percent from current 5 percent.

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

OTHER TAXES:

- Excise taxes on cigarettes will rise, and new environmental taxes will be levied on fuels.

HEALTH CARE AND SOCIAL TRANSFERS:

- Changes include cuts to parental contributions, child benefits, birth and funeral contributions and other welfare.

- Plan sees saving 8.5 billion on social benefits next year, savings should rise by 2010.

- Savings of 9.2 billion in sickness benefits next year.

- Automatic indexing of benefits should be abolished.

- Patients will pay a 30 crown fee for doctor visits.

- No sick pay for first 3 days of illness.

OVERALL SAVINGS:

Finance Minister Miroslav Kalousek said earlier this year the package would save 32 billion crowns in mandatory spending next year versus what would occur without reforms. He said the cabinet would slash 15.5 bln in discretionary expenditure to cut the budget deficit to 3 pct/GDP next year under domestic methodology.

[Reuters/Finance.cz]