Prague - The Chamber of Deputies on Wednesday approved an amendment leaving the flat tax rate on personal income at 15 percent, but cutting social insurance contributions by 1.5 percentage points from next year.

If approved by the Senate and the president, the bill, drafted by Finance Minister Miroslav Kalousek, will reduce total deductions - and increase net income - for all taxpayers. People with below-average income will benefit most.

"It is good news for low-income groups because their deductions will decrease next year, including those who today pay no taxes as their tax breaks are higher than their tax payable," said the finance minister after the vote.

Low-income groups won't lose out

The law that is in place now was to cut the personal income tax rate to 12.5 percent next year, but also reduce existing tax breaks. As such, it was to benefit above-average earners more than Kalousek's bill, while increasing total deductions for people with below-average income.

A working couple with two children and a combined monthly gross income of CZK 30,000 now pay CZK 3,953 per month in tax, public health insurance and social insurance. The existing law was to increase the deductions to CZK 4,352.5, while Kalousek's amendment will cut them to CZK 3,620.

A family with two children and a monthly gross income of CZK 50,000 will see total deductions drop by CZK 750 to CZK 9,745 per month. The same type of family grossing CZK 80,000 will hand the state CZK 19,120 per month, saving CZK 1,200 compared with today.

More tax breaks for business voted down

Three Civic Democrat (ODS) legislators led by Vlastimil Tlustý abstained after the government refused to accept their proposal that social insurance contributions drop by 2.5 percentage points instead of 1.5.

The lower house also rejected proposals by another ODS lawmaker, Michal Doktor, to free dividends from taxation and to reduce corporate tax to 15 percent. Today the tax rate for businesses is 21 percent and is scheduled to drop to 20 percent next year.