Eastern Europeans eyeing flat tax

When Bulgaria's Institute for Market Economics (IME) began touting a flat tax system for the country in the 1990s, it was seen as a crazy free market idea that would never become reality. But a lot has changed in the past decade, says Deutsche Welle, an international German broadcaster.

Consider:

Fresh from introducing a flat 10 per cent tax on corporate profits, Bulgaria's socialist-led coalition government now wants to do the same for personal income.

Besides switching to a flat tax, the Bulgarian government also wants to cut social insurance contributions by 3 per cent and increase pensions by 10 per cent.

A total of nine Eastern European and former communist countries are now shunning progressive tax systems in favour of a simple, one-rate-fits-all model of taxation. One recent example – the Czech Republic:

Czech coalition leaders recently agreed to adopt a 15 per cent personal income tax last week; the rate would drop further to 12.5 per cent in 2009 – the income tax currently maxes out at 32 per cent.

The government also wants to decrease the corporate tax rate to 21 per cent in 2008 and down to 19 per cent by 2010; a vote on the reform package is expected soon.

Despite the flat-tax revolution in the East, Western Europeans looking to get rid of a complicated system of tax deductions and exclusions are unlikely to see a flat tax any time soon, economists say. Most countries in Western Europe have long-standing social security systems which are funded by the redistribution that comes from progressive tax systems that get higher revenues from the rich, said Linda Yueh, a visiting professor at the London Business School.

Source: Trinity Hartman, Eastern Europeans Eyeing Flat Tax, Deutsche Welle, August 21, 2007.

For text: http://www.dw-world.de/dw/article/0,2144,2745513,00.html

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

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