The support was unanimous. The fairness was questioned. Still, income taxes are likely to drop for the majority of workers in the country if the Senate approves the tax bill later this month and the president signs it.

The Parliament's lower house, the Chamber of Deputies, unanimously passed the bill Nov. 1, which will introduce the largest income tax cuts in 13 years.

However, critics complain that the tax bill provides relief only to people in the lowest tax brackets or those with monthly incomes under 30,000 Kč ($1,220).

The bill, which is yet to be approved by the Senate and signed into law by President Václav Klaus, cuts the lowest tax rate from 15 percent to 12 percent for annual incomes up to 121,000 Kč. The second-lowest tax rate will from the beginning of 2006 be lowered from 20 percent to 19 percent and will apply to annual incomes ranging from 121,000 to 218,400 Kč.

Opposition leaders and business analysts complain that the bill provides savings for people with monthly salaries of up to 30,000 Kč while doing little to relieve the tax burden of the more privileged members of society.

Relief for the majority

Although Finance Minister Bohuslav Sobotka readily acknowledges the bill's shortcomings, he argues that it still provides much needed relief to the majority of the nation's workers.

"Given the fact that about 90 percent of Czech citizens receive salaries up to 30,000 Kč, this bill will be useful for a vast majority of people," Sobotka said.

Although that may be true, senior opposition Civic Democratic Party (ODS) leaders suggest that if adopted, the tax cuts will do nothing to bring down the high level of taxation in this country.

They insist that cutting taxes in the lowest brackets is far from a systemic approach to removing the excessive tax burden in the country.

In fact, shadow Finance Minister Vlastimil Tlustý of the senior opposition ODS pointed out that the tax cuts were merely a political move by the government to ensure its success in next year's general elections.

However, "A small tax cut is better than none, and so we supported the bill," Tlustý said.

He insisted the ODS has not given up the battle to get a flat tax adopted. Tlustý said if the ODS wins the next general elections, one of the first issues it will address is the need for a flat tax.

Social Democratic Party (ČSSD) deputy Jan Mládek, who presented the bill in Parliament, denied the tax cut had anything to do with pre-election campaigning.

"We were in fact driven by an effort to tackle unemployment, which has not decreased despite the current economic boom," Mládek said. "The cuts in [income] tax will increase the level of net incomes and thus could attract more people to work."

More cuts needed

A recent study conducted by Eurostat, the European statistical office, showed that while the average level of overall tax burden in this country — 36.2 percent of gross domestic product (GDP) — was lower than the EU average of 40.3 percent, the tax burden on employment in the Czech Republic was among the highest. While the EU average tax burden on employment was 35.9 percent, it was 40.1 percent in this country.

This year, the government expects to collect about 407 billion Kč in taxes, some 20 billion Kč more than originally planned. As a result, from each 100 Kč spent, the government will reap 38.50 Kč, the biggest rise in overall tax yield over the past five years, Sobotka said. He attributed the increase to improved tax collection and to companies becoming more profitable.

Business analysts say the government failed to honor its promise to the public when increasing the overall tax quota. The tax quota measures total contributions by households and businesses to the state in the form of taxes and insurance payments.

They suggest that the income tax bill cut could be a harbinger of more profound tax reform and would eventually reduce the tax quota.

"With the approved changes in income tax, the tax quota will fall 0.7 percent, and together with the [planned] corporate income tax in 2006 from the current 26 percent to 24 percent, the quota will fall to about 36 percent," said Raiffeisenbank's chief economist Pavel Mertlík. He added that the Czech tax quota would then fall 5 percent below the EU average, and would be the second lowest in Europe after Slovakia. Slovak officials attribute their lower rate stands of 30 percent to 31 percent to the introduction of a flat tax.

HVB Bank's Pavel Sobíšek acknowledges that the income tax cut had some populist features and could have a positive effect on economic growth.