Flat Tax Roundup December 2012

Two major events affected flat-tax countries in December 2012.

Slovakia

On December 4, 2013, the center-left parliament of Slovakia modified the country’s historic 19% flat-rate tax, which was introduced in 2004.  Effective January 1, 2013, the income tax rate for corporations was raised from 19% to 23%, while that on individuals earning more than €39,600 (€1=$1.30) a year was raised to 25%, thereby creating two brackets of 19% and 25%.  The top 25% rate will only apply to the top 1% of taxpayers.

To show that government officials would bear the burden of higher taxes, the prime minister, cabinet members, and all members of parliament would pay an additional 5% tax on their government salaries.

The government of Socialist Prime Minister Robert Fico, elected in March 2012 on the pledge to impose a higher tax rate on upper-income earners, claimed that the additional revenue to be raised, along with some spending cuts, was required to reduce the country’s estimated budget deficit of 4.6% below the eurozone’s target 3% ceiling.

Czech Republic

On November 7, 2012, the lower house (Chamber of Deputies) of the national parliament approved a proposal to impose a second higher rate of 22% on annual income exceeding Czech Koruna (CZK) 100,000 ($5,200) per month.  President Vaclav Klaus signed the bill on December 22, 2012, which will take effect on January 1, 2013.

As in Slovakia, the Czech Republic’s flat 15% tax rate was replaced with two rates, 15% up to CZK 100,000 per month, and 22% above that level.