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.


  • 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

    FMF Policy Bulletin/ 28 August 2007,/i>
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