The Parliament approved (101 to 99 votes) tax reforms proposed by the Government. The corporate income tax should decrease from current 24% to 21% in 2008, 20% in 2009 and 19% in 2010. Personal tax should change from progressive to flat 15% in 2008 and 12.5% in 2009 (counted from super gross salary). Besides, lower VAT tax applied to food, drugs, books, apartments, culture should increase from 5% to 9%. Tax reform lead also to changes in excise tax for cigarettes and tobacco products, which will increase cigarettes in average by CZK 7/pack in line with the last proposal. New reform also sets payment for drug prescription, visit at GPs. Reforms still needs to be approved by Senate, where ruling coalition has majority and signed by President.
Our view:
We see no real obstacles for tax reforms to be approved in the Senate and signed by the President. Lower corporate income tax will obviously have a positive impact on high tax-paying companies like CEZ, (273 CZK, 1,37%), (1 184 CZK, 0,94%) , Komercni banka or Erste as well as dividend stocks TEF O2 CR or PMCR. While the direct impact of the lower corporate income tax is relatively small, i.e. approximately 5% uplift on valuations, we believe the tax reform should provide a stimulus to the economy, i.e. increase in labour productivity, personal income taxes more friendly to higher value-added FDI.