UPDATE 1-Czech parliament approves lower tobacco tax rise

(Updates with final decision and background)

PRAGUE, Nov 8 (Reuters) - Czech lawmakers approved on Wednesday a lower than originally proposed increase in excise tax on tobacco from 2007, matching the minimum level required by the EU and raising the spectre of a shortfall in budget revenue.

A majority of lower house deputies voted for a rider, which curbed the planned tax rise originally put forward by the previous centre-left government.

The overall amendment to the excise tax legislation received the backing of the lower house in a later vote.

Finance Minister Vlastimil Tlusty told reporters the levy on the best-selling domestic cigarette brand would rise by some 10 crowns per pack, against the previously proposed 13 crowns.

The tax increase would come into force in January, provided it wins the approval of the Senate, the parliament's upper house, and is signed into law by President Vaclav Klaus.

Top Czech cigarette maker Philip Morris CR <TABKsp.PR> has eagerly awaited the new legislation, as it partly absorbed previous excise tax hikes rather than raising prices, which took its toll on earnings and hurt its share price earlier this year.

Lawmakers agreed to the lower tax hike at a time when Czech public finances are crumbling and the fiscal deficit is officially forecast to jump to 4 percent of gross domestic product next year, above the 3.0 percent threshold for joining the euro zone.

Deputy Finance Minister Bohdan Hejduk told Reuters last month the budget, targeting a deficit of 91.3 billion crowns ($4.17 billion), faced a possible shortfall of as much as 5 billion crowns if the parliament curbs the proposed tax hike.

The burgeoning fiscal deficit, fed by a sharp rise in welfare spending and seen unlikely to fall below 3 percent before 2010, has forced the Czech Republic to abandon its target to join the euro zone in 2010. ((Reporting by Jan Korselt; Writing by Marek Petrus; Editing by Ron Askew; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477)) ($1=21.91 Czech Crown)

Keywords: ECONOMY CZECH TAXES