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Tax System of the Czech Republic. 2011. A brief comparison …. economical and political system others … Taxes _ at _a_ Glance _2011cCZ- UZB.pdf

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a brief comparison
A briefcomparison…
  • economicaland
  • politicalsystem
  • others…
  • Taxes_at_a_Glance_2011cCZ-UZB.pdf
  • http://maps.google.com/maps?q=Mustaqillik+Maydoni,+Tashkent,+%D0%A2%D0%B0%D1%88%D0%BA%D0%B5%D0%BD%D1%82%D1%81%D0%BA%D0%B0%D1%8F+%D0%BE%D0%B1%D0%BB%D0%B0%D1%81%D1%82%D1%8C,+Uzbekistan&hl=cs&ie=UTF8&ll=41.31443,69.269003&spn=0.003816,0.008256&sll=41.316433,69.26675&sspn=0.007631,0.016512&t=h&z=18
czech tax system
CZECH TAX SYSTEM
  • Income taxes
    • personal income tax
    • corporate income tax
    • social security contributions
  • Consumption taxes
    • value added tax
    • excise duties

(mineral oils, tobacco, as a residual for example beer, wine, alcohol,)

    • energy taxes (electricity, solid fuels, natural gas)
  • Property taxes
    • real property tax, real property transfer tax, inheritance tax, gift tax, road tax
  • Environmental - green, local and administration taxes / fees
czech and uzbekistan of all tax revenues http www mf gov uz en gos budjet html
CzechandUzbekistan(% ofall tax revenues)http://www.mf.gov.uz/en/gos-budjet.html
slide6

OLD NEW

Cz

e

c

h

slide7

Total Taxes (including SSC) as % of GDP can sometimes be tricky…

Some differences not only reflect

1/social policy choices such as public or private provision of services, e.g. old-age and health risk protection, but also

2/technical factors: some Member States provide social or economic assistance via tax reductions (lower indicator) rather than direct government spending (higher indicator, if not DEBT), OR while social transfers are exempted from taxes (lower) and social contributions in some Member States but not inothers.

czech tax system1
CZECH TAX SYSTEM

Sharesofdifferenttaxes in thetotal tax revenue

slide11

New

Denmark

New

ssc in czech rep
SSC in CZECH REP.

Denmark

Czech

Denmark

Czech

slide14

19 % in CzechRep.

Uzbekistan – 9 %

15 % forcomm. banks

  • Reductionof tax rate
    • 24 % in 2007
    • 21 % in 2008
    • 20 % in 2009
    • 19 % in 2010
  • The rate for all withholding taxes is unified at 15 %
  • Uzbekistan – 6, 10, 20 %
the tax to gdp ratio s and or implicit tax rates
The tax-to-GDP ratios AND/ORimplicit tax rates
  • The tax-to-GDP ratio and the breakdown of tax revenues (% of the total tax burden) into standard categories such as
    • direct taxes,
    • indirect taxes and
    • social contributions

provide a first insight into cross-country differences in terms of tax levels and its composition in terms of tax type.

  • Other approach additionally provides a broad classification of taxation in three economic functions –
    • consumption,
    • labour and
    • capital.
  • The implicit tax rates or ITRs are calculated as TAX/potential tax base., i.e. average effective tax burden indicators; unlike simple measures of the tax revenue, these take into account the size of the potential tax base, which often differs substantially from one country to the other.
  • The term 'implicit tax rates' is used in order to distinguish the backward looking approach (weknow TAX and BAZE andcalculate ITR) from forward looking average effective tax rates calculated (derived) on the basis of the tax code.
  • Other different concept is nominal tax rate (TAX/tax base udjusted)
slide16

the taxes levied on (employed) labour income, which are usuallywithheld at source (i.e. personal income tax levied on wages and salaries income plus social contributions), represent the

most prominent source of revenue, contributing almost 50 % of overall receipts on average, followed by consumption atroughly one third and then capital at around one fifth.

personal income tax
PERSONAL INCOME TAX
  • Tax rate: 15 % (effectively20 %fromthegrosswage)
  • In forcesince 2008
  • Until 2007: fourbracketsystemwith tax ratesfrom12 % to 32 %
  • Applicable to:

Salariesandwages,

Incomefrom business activities,

Incomefromcapitalassets,

Rentalincome

Others…

personal income tax1
PERSONAL INCOME TAX

History - development of the highest tax rate

personal income tax2
PERSONAL INCOME TAX
  • The tax base for any employee includes the gross salary increased by the employer’s health and social insurance contributions
  • Self-employed persons are not be able to deduct their social and health insurance from their tax base.
  • Taxed on month basis (12 tax advancepayments) andsummary (salaryroll, clearing) attheendoftheyear
  • Various tax allowances (per year)
    • mortgage interest (till 12xaver.wage per households)
    • private pension insurance andlife insurance (till 2x0,5aver.wage)
    • charity (min. 1/24xaverwage till 10 % of tax baze), !!! is not expenditurefor tax purposes (examplelater)
  • Tax credits
    • basic (1xaverwage = 25000 CZK)
    • wastable for dependent partner (1xaverwage)
    • non-wastable for children (0,5xaverwage per child)
main non standard tax reliefs
Main non-standard tax reliefs
  • Charitabledonationsallowance: A tax allowanceofup to 10 per cent oftaxableincomeisavailablefordonationsmade to municipalitiesorlegalentitiesforthefinancingofsocial, health, cultural, humanitarian, religious, ecologicaland sport activities. The minimum limit fordonationsisthelesserof 2 per cent oftaxableincomeor CZK 1 000.
  • Interestpayments: Taxpayersmayclaimanallowanceofup to CZK 300 000 formortgageinterestpaymentsorotherinterestpaymentsrelated to thepurchaseortheimprovementoftheir house. If more thanoneindividualliving in thesamehouseholdapplyforthisallowance, the sum oftheirannualdeductionsissubject to theabovementionedceiling, i.e. CZK 300 000.
main non standard tax reliefs1
Main non-standard tax reliefs
  • Supplementary pension schemecontributions: Taxpayerswho are membersof a registeredsupplementaryprivate pension scheme are entitled to deducttheindividuallypaid (i.e. paid by employee) annualcontributions to a registered pension schemereduced by CZK 6 000 fromtheearnedincome. The maximum allowanceis CZK 12 000 a year.
  • Privatelifeinsurancepremiums: Taxpayersmayclaimanallowanceofup to CZK 12 000 forpremiumspaidaccording to a contractbetweenthetaxpayerandaninsurancecompanyifthebenefit (lump sum orrecurrent pension) ispaidout 60 monthsafterthesignatureofthecontractand in theyear in whichthetaxpayerreachestheageof 60.
corporate income tax
CORPORATE INCOME TAX
  • CIT is levied on income from the worldwide operations of Czech tax residents and on Czech-source income of Czech tax non-residents
  • The Czech tax residents - entities with their seat or the place of management in the Czech Republic
  • Tax base is calculated from the accounting profit/loss

(according to the Accounting Act and Czech accounting standards)

  • The accounting profit/loss is further adjusted by non-deductible costs, non-taxable revenues etc.
  • The tax period may be a calendar year or fiscal year
corporate income tax1
CORPORATE INCOME TAX
  • Reductionof tax rate
    • 24 % in 2007
    • 21 % in 2008
    • 20 % in 2009
    • 19 % in 2010
  • The rate for all withholding taxes was unified at 15 %
  • Losses can be carried forward for the 5 following tax periods
  • Extended binding rulings help to reduce administrative burden and uncertainty of firms
  • Investmentincentives: tax holidaysforup to 5 years

(in somecaseseven 10 years)

pit x cit
PIT x CIT
  • adjustments of taxable income slightely differ
  • charity (10 for PIT contra 5 percent for CIT)
  • Research and development alowance (strong measure to reduce tax baze)
slide30

Example - Gifts as an allowance measure…gift 1 to the hospital A = 6000 gift 2 to the hospital B = 3000 gift 3 to the secondary school A= 3000 gift 4 to the secondary school A= 300 !!!!RandDalowance = 5000Profit = 100000

PIT

CIT isdisadvatagedusually

tax baze =

100000 + allgifts = 112000

MINUS RandD

107000 = intermediate tax baze

MINUS allgifts (max 5% ofintermediate tax baze, 5350)

adjusted tax baze =

112000-5000-5350 =

101700 isadjusted tax baze

  • tax baze =
    • 100000 + all gifts = 112000
    • 112000 is caled tax baze
    • MINUS RandD
    • MINUS gifts (max 10%of 112000, soonly 11200, not 12000)
  • adjusted tax baze =
    • 112000-5000 -11200=
    • 958000 is adjusted tax baze
value added tax
VALUE ADDED TAX
  • A general, broadly based consumption tax assessed on the value added to goods and services
  • Taxable person: an individual or corporation in case of economic activity
  • Obligatory registration x voluntary registration
  • Tax rates:
    • 20% standard rate,
    • 10% reduced rate

(foodstuffs, residential construction, accommodation and transport)

    • The reduced rate was increased from 5 % to 9 % in 2008
  • Since 2010 the both rates have been increased by 1 percentage point (austerity package)
vat reduced rate and ba s e indicator
VATreduced rate and baseindicator
  • VAT = t-statutory * tax base adjusted by tax code
  • VAT = ITRvat * full final consumption
  • we derive so called indicator of VATreduced rate and base as
  • standard VAT rate - ITRvat
vat reduced rate and ba s e indicator in czech rep
VATreduced rate and baseindicator in CZECH REP
  • low and
  • will be lower (expectations based on elimination of reduced rate)
  • VAT tax burdenisgoing to behigher
value added tax1
VALUE ADDED TAX
  • Exemption with the right of deduction
  • Exemption without the right of deduction
  • Fiscal period - calendar month or calendar quarter
excises
EXCISES
  • Fully harmonised with EU directives
  • Mineral oils
    • Petrol – 12 840 CZK (505 EUR) /1 000 l
    • Diesel – 10 950 CZK (431 EUR) /1 000 l
    • Heating oils – heavy – 472 CZK (19 EUR) /t
    • LPG – 3 933 CZK (155 EUR) /t
  • Beer
    • 5 rates – acording to amount of production – from 32 CZK (1,26 EUR) to 16 CZK (0,63 EUR) /hl/degree Plato
  • Wine
    • just sparkling 2 340 CZK (92 EUR) /hl
    • still wine not taxed
excises1
EXCISES
  • Alcohol
    • 2 rates – 28 500 CZK (1121 EUR) /hl etanol; 14 300 CZK (563 EUR) /hl etanol
    • The lower one – ethyl alcohol produced by fruit growers´ distilleries
  • Tobacco products
    • Cigarettes – minimum tax rate – 2,01 CZK (0,08 EUR) /item
    • Tobacco – 1 340 CZK (53 EUR) /kg
    • Cigars and cigarillos – 1,15 CZK (0,05 EUR) /item
  • Environmental (green or energy)
    • Coal – 8,50 CZK (0,33 EUR) /GJ gross caloric value
    • Gas – the basic rate – 30,60 CZK (1,2 EUR) /MWh gross caloric value
    • Electricity – 28,30 CZK (1,11 EUR) /MWh
    • in force since 2008
  • All excises rates except wine and environmental have been increased since 2010

(austerity package)

property taxes
PROPERTY TAXES
  • Real property tax
    • paid annualy from
      • land
      • buildings
    • Farm land can be exempt from the real estate tax
    • Municipalities are allowed to set the local coefficients (1 to 5) which determine the rate of real estate tax imposed on buildings
  • Since 2010 most of the property rates have been increased to double (austerity package)
property taxes1
PROPERTY TAXES
  • Inheritance and gift tax
    • only between non-relatives
    • i.e. all inheritances and gifts within the family and other relatives are exepmt
  • Real property transfer tax
    • tax rate of 3 % of the value
road tax
Road tax
  • is payable on vehicles registered and operated for business purposes
  • tax rates are (year period)
    • 1,200 - 4,200 CZK (47 – 165 EUR) for passenger cars (according to engine size for passenger cars)
    • 1,800 - 50,400 CZK (71 – 1983 EUR) for trucks (according to weight and number of axles).
  • Some vehicles with an electric, hybrid engine or use LPG, CNG as a fuel are exempt from the tax (green tax policy issue).
  • Foreseen changes in the future:
    • exemption of passenger cars (national reasons),
    • increase of the tax rate for trucks (EU reasons).
tax to gdp ratio
TAX TO GDP RATIO

Total tax revenue as a percentage of GDP

tax administ r ation
TAX ADMINISTRATION
  • 199 tax offices
  • 8 regional financial directorates
  • Ministry of Finance
    • Central Financial and Tax Directorate
    • part of Ministry of Finance to 2010 – since 2011 new independent agency General Directorate of Finance
tax administ r ation1
TAX ADMINISTRATION
  • Other agencies collecting public revenues
    • customs administration
    • social security administration
    • health insurance companies
tax revenue sharing
TAX REVENUE SHARING
  • PIT, CIT, VAT among central, regional and local level
    • central government: 70 %
    • regions: 9 %
    • municipalities: 21 %
  • Real estate tax goes to municipalities
  • All other taxes go to the state budget or other central government‘s funds
package of austerity measures
PACKAGE OF AUSTERITY MEASURES
  • Has been in forcesince 2010
  • Purpose – to reduce deficit of public finance
  • Containsrateincrease in VAT (19 to 20, 9 to 10), excises, realproperty tax and PIT (lower expense allowancesforsomeminorkindofenterpreneurs – agriculturalandhandicraftactivities 80%, otherminoractivities 60 % and 40 %)
slide47

Progressiveness of the VAT and excises in the Czech Republicbased onKLAZAR, Stanislav. Progressiveness of the VAT and Excises in the Czech Republic – Empirical Analysis. International Review of Economics & Business, 2008, č. 12, s. 99–112. ISSN 1331-5609. online seeklazar.blogspot.com

the vat and excises in the czech republic
The VAT and excises in the Czech Republic

Global tax mix

Social Security

Contribution - 43 %

PIT – 12 %

CIT – 13 %

VAT – 23 %

Excises – 7 %

two ways of distributional tax analysis
Two ways of distributional tax analysis

All distributional analyses are based on measurement of impact on the poor and on the rich subjects (i.e. subjects on different part of well-being scales).

So the crucial question is: what should be selected as appropriate measure of well-being (of household).

  • annual framework
    • Well-being = f(annual income)
    • Theoretically not so appropriate
    • Easily measurable (appr. 90 % of distributional analyses used this approach)
  • lifetime framework
    • Well-being = f(lifetime income)
    • Theoretically more appropriate because the lifetime incidence approach tries to eliminate temporary fluctuations in income
measures of lifetime income
Measures of lifetime income
  • Well-being = f(lifetime income)
  • Estimation of lifetime income is the most exciting and challenging issue in up to date distributional research.
  • Lifetime income can be measured (see Slintakova (2006); Metcalf (1994)) as:
    • the present discounted value of earned income plus bequests (gifts) received
    • the present discounted value of consumption plus bequests made
      • used in this analysis.
modified lifetime income
Modified lifetime income
  • Due to the lack of appropriate information we had to modified definition of lifetime income. We measured lifetime income as:
  • Current consumption (money expenditures PLUS natural consumption MINUS social insurance)
    • Bequests were ignored (Metcalf (1994) supported this exclusion)
tax burden calculation
Tax burden calculation
  • choose the average (typical for the selected part of income scale) households and calculate their tax burden
  • calculate the burden for all (and every) individual households, it means to calculate relevant tax burden for every households in the survey, and then study the differences in tax burdens.
    • We used microsimulation model to calculate individual tax burdens
advantages of microsimulation model
Advantages of microsimulation model
  • analyse not only the averages for the ex-ante defined (social) groups of households, but also its variability within these groups
  • identify unusual behaviour of certain households or groups, which can otherwise be hidden (some kind of outliers)
  • try to find other, not so obvious relevant variables determining the taxation of households
  • use the impact of taxation itself as a classification variable (and study the characteristics of the groups with lowest/highest tax rates on expenditure)
microsimulation model
Microsimulation model

Where

  • SCIni means money expenditures on a statistical consumption item n in year i
  • tn (in %) is a tax rate assigned to the statistical consumption item;
  • the base which is used for the tax liability calculation is in fact paid prices of goods or services including the VATsothatthe tax rate was converted accordingly.
slide56

Example of statistical consumption item

  • forn = 01.1.1.X
  • Classification of expenditures in SRU (Czech Household budget survey (HBS))
the aim of empirical analysis
The aim of empirical analysis
  • to compare the distribution impact of the VAT and excises under both well-being measures.
  • The presupposed result that the consumption taxation can be considered as progressive under lifetime income framework can be interesting for the policy makers.
results of vat analysis
Results of VAT analysis

Lifetime income (annual consumption)

Annual framework (annual income)

results of excise analysis
Results of excise analysis

Lifetime income (annual consumption)

Annual framework (annual income)

conclusions
Conclusions
  • design of the VAT is generally progressive, but the propensity to consumption outweighs this design effect and causes the VAT to be regressive under the annual income framework (on the contrary to lifetime approach)
  • design of excises is generally proportional and so excises seem to be rather regressive or proportional then progressive under both the frameworks
conclusions 2
Conclusions 2
  • some level of progressivity of the Czech VAT is caused especially by application of the reduced rate on selected goods and services (especially necessities, i.e. goods expenditures on which represent higher portion of total consumption for lower income households)
  • Czech VAT looks progressive if we use the consumption expenditure for allocation of households to quintiles (and for calculation of the relative tax burden). On the contrary the tax is regressive under the annual income framework.