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KPMG: Proposal for a new austerity package of budgetary savings

The Czech government is currently preparing a new austerity package of budgetary savings and tax increases. While the proposal has yet to be discussed by the government, it is likely that many of the measures will be adopted in an altered form.
 
Key proposed changes are:
·         An increase in the personal income tax rate by one percent (to 16%) and the introduction of a second tax band with a rate of 31%;
·         Reduction in lump-sum expense deductions for the self-employed to the level applicable in 2004, i.e. generally 25%;
·         Increase of the common VAT rate at 19 or 20% (currently 17.5% will be applied from 2013), with a possible exception for books and medicines, or, alternatively, maintaining two rates at 15 and 21%;
·         A new carbon tax on fuel oils and solid fuel;
·         Application of excise tax on wine;
·         Increase of energy tax on electricity;
·         Abolition of the excise tax exemption for natural gas for households and “green diesel”;
·         A temporary pension freeze;
·         Cancellation of the childbirth benefit and the poverty threshold housing benefit.
 
The 2012 counter-crisis package, which the minister took as a basis, was prepared by the National Economic Council (NERV), advisory body to the government, and contains a number of other measures, for example:
·         Increasing real estate transfer tax from 3% to 5%;
·         Increasing real estate tax;
·         An end to granting emission rights free-of-charge;
·         Introducing a tax on insurance premiums (taxation of insurers, for instance in the form of a tax on the volume of premiums received);
·         Increasing the minimum assessment base for self-employed persons from 25% of the average wage to 50%.
 
Source: KPMG Czech Republic, Financial Update 2/2012
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