The Czech Republic is grappling with a significant disparity in its tax system, where employees face substantially higher tax burdens compared to self-employed individuals (OSVČ). According to recent analysis by PAQ Research, this gap is notably wider than in neighboring countries, raising concerns about fiscal fairness and sustainability.
The contrast is particularly striking among high-earning self-employed professionals in office-based sectors like IT and administration. At income levels around 90,000 CZK (roughly double the average wage), self-employed individuals with low operational costs may pay up to four times less in taxes and social security contributions than regular employees. This ratio stands in stark contrast to neighbouring countries, where Slovakia shows a 2.6x difference and Poland merely 1.6x.
High-income self-employed individuals in the Czech Republic might contribute as little as 10% of their actual profits to state coffers, while their counterparts in Germany and Austria pay nearly equivalent rates to employees – around 40% or more. The system’s imbalance is further highlighted by the fact that employee contributions constitute 93% of labor taxation, despite the country having approximately 1.15 million self-employed individuals compared to 4 million employees.
Experts suggest several potential solutions, including adjusting expense allowances to reflect actual costs and introducing progressive taxation based on income levels. This could help balance the system by reducing the tax burden on low-income employees while increasing contributions from high-earning self-employed individuals, potentially recovering tens of billions of crowns for the state budget.
While the current flat-rate tax system offers simplicity and minimal bureaucracy, economists argue that addressing these disparities is crucial for the country’s fiscal stability and social equity. The challenge lies in finding a balance that maintains entrepreneurial incentives while ensuring fair contribution to public finances across all earning categories.