RPT-FACTBOX-Key points of Czech fiscal reforms

...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 2.3 percent in 2010 from 4 percent seen 
this year, through the approved reforms and further changes in 
the pension and health systems. 
    The following are selected proposals included in the 
package, which will become law when signed by President Vaclav 
Klaus. 
    
   For news stories on the reform and the budget, double click 
on [ID:nPRA001508] and [ID:nL19451672].  
    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, and will little affect the middle class. 
    - 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. 
    Analysts have said the changes would improve the budget 
balance by some 30 billion crowns next year but have a negative 
impact by 2010.