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What Will the Abolition of Super-Gross Wages, Reductions in Social Security Contributions, and the Introduction of Tax Holidays Mean?

28 January, 2022

Tax holidays promised in the Czech government's program statement would have a negligible impact on all employees except the most profitable, a new study by Klára Kalíšková and Michal Šoltés from Think-Tank IDEA suggests.

The study analyzes the real impact of the proposed introduction of tax holidays as set out in the policy statement issued by the new Czech government led by Petr Fiala. It should apply to families who receive the parental allowance or have three or more children. The impact on those families would be extremely limited. Such tax holidays would benefit almost exclusively employees in the highest fifth by income.

Furthermore, suppose such tax holidays were limited to within a certain income bracket, as the policy statement implies. In that case, such a policy would likely have almost no effect.

The study also analyzes the effects of tax legislation's changes adopted in December 2020 and July 2021. It will reduce public revenues in 2022 by about 116 billion CZK (from 227 billion CZK to 111 billion CZK). In other words, in 2022, employees will pay less than half the income tax they would have paid without these tax changes. Workers in the lowest income quintile will save 500 CZK per month on average, whereas those in the highest income quintile will save an average of 4,000 CZK each month.

The Technology Agency of Czech and the Czech Academy of Sciences supported Think-Tank IDEA's production of "We've done the sums for you: Here's what the abolition of super-gross wages, reductions in social security contributions, and the introduction of tax holidays will really mean." The full study (in Czech) is available on Think-Tank IDEA's website.