1 Tax reform in the CR 1990 1993 2004 20062000 Time line Tax system in 1989 different conditions for different economic subjects impact on taxes paid by (state owned) enterprises ­ administrative aspect ­ fiscal illusion low property taxes space for negociation Income (corporate) tax different taxes for diff. companies ­ form of property ­ sector of economy how did you define ,,profit" tax rate 55 ­100 % Tax on salaries progressive tax not an universal tax the applied rate depended more on family status and less on salary (wage differentiation) Payroll tax addition to income taxes financing social system difficult system to motivate (controle) 2 Turnover taxies around 1800 different rates for different goods further complicated by ,,negative" tax (food, energy, childwear, ...) ­ ,,Goulash socialism" regulary changes - controle prices of goods negotiation ,,subsidies" were huge Other taxes low taxes on property, but private ... high taxes on private activities Tax revenues 1989 income taxes 83 payroll tax 95 turnover tax 86 = 135 ­ 49 tax on salaries 53 other 37 --------------------------------------- SUM 354 = 47 % HDP Did we need changes? system is incompatible with market economies entry to EU ­ VAT high tax burden soft rules New principles of tax system Neutral taxes Unite tax conditions Comparable burden Harmonization purity, efficiency, transparency, equity Speed of the reform how fast should reform be? fast shocking reform ?? ­ cutting off from past tax system (negotiations) ­ higher initial cost ­ need of big simplification slower gradual reform ?? ­ time for education ­ continuity of tax revenue 3 Reform timetable how fast? changes 1990-1992 preparations new taxes 1993 customization 1993 ­ Cena reformy tranzitivní náklady implementace nejen náklady VS vyšší počet poplatníků nový systém více závisí na informacích obecně potřeba velkého zjednodušení Changes 1990-1992 small ,,changes" of taxes (stop from being an obstacle in building new economic system) preparation of the new tax system 1990- 1991 - Parliament Income taxes uniting conditions new accounting removing of negotiations one rate 55 % tax on salary increasing impact on taxing individual income - progresivity turnover tax abolishment of negative tax (1990) decreasing of number of rates 1992 ­ 4 rates changing in rates - shifting 4 tax system 1993 Direct taxe PIT CIT Property SSC Indirect Taxes VAT ED Ecological Import duties changes 1993-2004 fast reform = symple reform world is developing need of harmonization changing of governments (and fiscal policies) PIT many amendments decreasing of tax rates from 6 to 4 ­ 15, 20, 25, 32, 40, 47% Inflation ­ indexation (borders and deductions) erosion of the tax base CIT decreasing of the rate from 45 % to 31 % (28/26/24%) tax write-offs changes Risk ­ special deduction, loss, support of FDI coordination with EU, OECD VAT 23 % X 5 % standard to 22 % ,,intention" 15­19 % X 8 % decreasing of the registration treshold moving comodities from lower rate to standard main changes this year ­ EU entry (harmonization) ED increasing rates with the target of minimal EU rates (harmonization) ­ tax on fuel, tax on cigarets ,,green" diesel for agriculture, duty free canceling tax on cigarets ­ two component tax introduction alcohol ­ already on european level 5 OECD recommendations (Bronchi-Burns OECD 2000) Consider reducing expenditure to lower the overall tax burden Reduce the number of goods and services subject to the reduced VAT rate Reduce the importance of social security contributions in total tax revenues Eliminate the bias in favour of self-employed work forms Decrease non-neutralities in the taxation of capital income Problems of the present tax policy in CR labour taxation difference between lower and standard rate (VAT) tax burden of self-employed tax stimulation of FDI taxing tabacco tax expenditure ecological taxes tax evasion ... future development 2005-2008 public finance reform, pension reform entry to EU ­ transitional arrangements: ­ Turnover threshold to exempt SMEs from VAT set at 35 000 ­ Reduced VAT rate on heating until 31 December 2007 ­ Reduced VAT rate on construction until 31 December 2007 ­ Lower excise duty rates on cigarettes until until 31 December 2007 ­ Special excise regime for fruit growers' distillation for personal consumption ­ VAT exemption on international passenger transport we have to cope with energy tax directive