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Evaluation the impact of the personal income tax reform in the Czech Republic in 2021 on effective tax rate and tax progressivity

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  • Michal Krajňák

Abstract

Legislation governing personal income taxation is often subject to changes. A significant personal income tax reform was carried out in the Czech Republic in 2021. The reform implements a progressive tax rate, changes the way the tax base is determined, and increases the tax relief for the taxpayer. The aim of the article is to evaluate the impact of the personal income tax reform on the effective tax rate and tax progressivity. To that end, methods of regression analysis have been used. The source of information for analysis was the data published by the Czech Statistical Office. It was found that in 2021, in comparison with 2020, the tax burden represented in this study by the effective tax rate, in all cases became lower, approximately by 5%. The main reason for this decline is the adjustment of the method of construction of the tax base, which, for the first time in the history of the Income Tax Act, is gross wages. Until the end of 2020, the tax base was a super-gross wage, or the gross wage increased by social security contribution borne by the employer at his costs. The second factor that reduces the tax burden is a CZK 3,000 increase in the deduction per taxpayer per year. This fact increases the degree of tax progressivity, as confirmed by the results of the progressivity analysis and the regression analysis. The changes that have taken place in the personal income tax this year have a positive impact on the taxpayer, but from the point of view of the state, this reform has reduced the state budget revenues.

Suggested Citation

  • Michal Krajňák, 2021. "Evaluation the impact of the personal income tax reform in the Czech Republic in 2021 on effective tax rate and tax progressivity," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 7(2), pages 134-145.
    • Handle: RePEc:aiy:jnljtr:v:7:y:2021:i:2:p:134-145
    DOI: https://doi.org/10.15826/jtr.2021.7.2.094
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    References listed on IDEAS

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    1. Chung Tran & Nabeeh Zakariyya, 2021. "Tax Progressivity in Australia: Facts, Measurements and Estimates†," The Economic Record, The Economic Society of Australia, vol. 97(316), pages 45-77, March.
    2. Martin Pernica, 2017. "Evaluation Of The Adequacy Of Government Minimum Wage Valorization Policy In The Czech Republic In 2017 In The European Context," Oeconomia Copernicana, Institute of Economic Research, vol. 8(1), pages 21-36, March.
    3. Chiara Bronchi & Andrew Burns, 2001. "The Tax System in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 51(12), pages 618-638, December.
    4. An Zhiyong, 2019. "Two General Lessons from the 2019 Personal Income Tax Reform of China," The Economists' Voice, De Gruyter, vol. 16(1), pages 1-5, December.
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