Earlier today, the lower house of parliament of Czech Republic adopted a 15 percent flat-rated tax on personal income, replacing previous graduated progressive tax code based on tax rate ranging from 12 percent to 32 percent, depending on the earned income. The new tax system will take effect on January 1, 2008, while the rate is scheduled to drop to 12,5 percent in 2009. The legislated proposal also reduces 24 percent corporate income tax to 19 percent by 2010.
The act of adopting the revenue-neutral tax rate on individual income, makes the Czech Republic the 20th country to adopt the flat tax, following Bulgaria's recent flat tax adoption.
Once the flat tax is adopted, the tax system is free of various tax exemptions, deductions and loopholes; the ulitmate sources of tax evasion and compliance burden. The aspect of cost-adjustment which firms and households have to pass-through to adjust time and behavior to tax complexity, is of course another important reason showing that lower tax burden leads to more succinct allocation of time and resources of households and firms; two entities highly sensitive to the taxation of productive behavior.
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