Self employed under the spotlight with view to increased tax payments

The Czech self employed are under the spotlight at the moment and it looks like they will be for some time to come.

Photo: Tomáš Adamec

Already the self-employed have been the targets of mail shots from the Ministry of Labour and Social Affairs, pointing out that the minimum pension payments they often make will result in very reduced pensions payments when they finally hit the end of their working lives. The response to these reminders is reported to be have been fairly minimal.

And the Ministry of Finance also appears to have the self employed in its sights as well. The daily Dnes reported Thursday that preparations are now underway for an overhaul of the tax framework aimed at increasing the income taxes paid by the country’s many self-employed.

The architects of that framework are facing a fundamental problem in the fact that income tax paid by the self-employed has shrunk more than tenfold over the last decade, according to Dnes. Income tax revenues from them stood at 26.6 billion crowns in 2005 and dropped to 2.5 billion in 2015.

Of course, this is often not the result of some fiendish accounting by the self employed or their disappearance as a species – they are still numerous though to judge from most tax returns not prospering. Rather, this is the outcome of previous government’s past generosity.

Tax brackets and breaks have been framed in such a way over the past decade that around half of those now declaring their main income as independent business activities pay no tax at all. Most declare income below levels that would be needed to pay a minimum wage, Dnes reports.

Previous steps ensuring a minimum annual tax payment from all self-employed of around 10,000 crowns were ditched by the centre-right wing government of Mirek Topolánek in 2009.

In their defense, the self employed point out that if they don’t pay much into the system, then they don’t get that much out of it either in terms of unemployment pay, sickness benefits, and pensions, compared with the high contributing employees.

But the Ministry of Finance is reported nonetheless to be looking hard at the current tax framework and is keen to change it. Tax brackets tailored to what activity the self employed person is declared in and where in the country he/she works might be one path to follow, according to the paper.

While the tax officials beaver away with their options, the estimated around 3.2 million registered Czech self employed – around a third of the population – need not lose too much sleep for now. The new measures are not expected to be put in place until after parliamentary elections take place in 2017 with any new administration given a free hand to make changes or scrap the tax proposals altogether.