A Comparison of the Tax Burden of Natural Persons Having Incomes from Employment for the Years 2007, 2008 and 2009

Abstract

Purpose of the article: The purpose of the paper which has come into being with the financial support of the Czech Science Foundation as an output of the grant project No. 402/09/P469 - Development and Competitiveness of the Czech Tax System in the Area of Taxation of Natural Persons Incomes is to present results of carried out comparison of the tax burden of a tax-payer who is gaining his money only from employment. Single and childless taxpayers with tax residency in the Czech Republic were chosen to represent this category of taxpayers. Methodology/methods: The comparison is realized by means of the “relative tax burden” indicator. This indicator was calculated as quotient of “a sum of income tax plus social and health insurance contributions paid by the employee” and “gross wage”. The social and health insurance contributions were included with the aim to implicate the impact by the law stated obligatory payments on a disposable income of a taxpayer. The amounts were calculated for the year values. The lowest yearly amount under consideration was that corresponding to the minimal wage (CZK 96,000.00). The comparison is performed for the years 2007-2009 and presented above all in a form of relevant graphs and related commentaries. Scientific aim: The aim of the paper is to describe changes in relative tax burden (effective tax rate) in connection with the amendments of Act on Income Taxes with a view to incomes from employment. Findings The authors proved while using a simplified model that despite the existence of the flat tax rate for taxation of natural person incomes in taxable years 2008 and 2009, the relative tax burden of a tax-payer has a progressive character, however, only up to a certain level of total year gross wages. This level matches to the maximal base of assessment for social and health insurance. From this level of total year gross wages, which represents an inflection point, the relative tax burden has conversely a regressive character. The results of carried out analysis prove, among others, a fundamental impact of the new conception of partial tax base under Section 6 paragraph 13 of Act on Incomes Taxes and impacts of the maximal base of assessment for social and health insurance. Conclusions (limits, implications etc): In general, one can observe that changes in the sphere of taxation of the incomes from employment which came into operation on 01 January 2008 brought tax savings to tax-payers. However, the amount of the tax savings is fundamentally determined by the amount of the total gross year wage. The highest tax saving, when compared the tax burden in the year 2008 with the tax burden in the year 2007, was gained by the tax-payers with above-average incomes. This conclusion was valid also in the year 2009. In connection with above mentioned, it is to stress that a decrease of a tax burden of a tax-payer is only one factor from plenty of those affecting the amount of disposable tax-payer income. Within the system views of the issue, there is a need to comprehend other aspects such as e. g. extension of a tax base, changes in social benefits, changes in other taxes and inflation.