Taxation system in EU 2 - How can we calculate our net salary in Czech salary ?

 Hello hello, 

It has been almost for 3 years since I wrote on my blog last time. Time flies but I don't think not so much changed in my life but my mind and my perspective on many aspects of life have changed almost 180 degrees. I think I grew up more and matured more emotionally. Also, I know now what I really want in my career. I admit that I realized it a bit too late in comparison with my peers. Actually, there is a saying in my country that a good accountant's kid becomes a good accountant and a good doctor's kid becomes a good doctor. Doesn't it sound a bit like a caste system? :D Haha I realized this only when i grew up emotionally and matured. My mom was no exception in this regard. She was a medical doctor and general practitioner for her whole life and when I was out fresh from high school, 17, she convinced me to go to medical school in Turkey because my grandma was a pediatrician and my grandpa was a neurosurgeon and my mom was a general practitioner. This is a fact that almost nobody knows about my life that i studied at medical faculty in Ankara, Turkey for 3 months in 2012 and changed my major after 3 months and became blacksheep in my family. I didn't even let her know that i was changing my major to Economics. Shock shock... haha My mom was so so much disappointed in me i still remember. Still she talks now like "what if you only finished your medical study"...

Medical doctors and teachers are the most respected yet least-paid jobs in my country. I know very well from my whole life experience that there is something fundamentally wrong with the system in Mongolia. The government's budget has consisted of money coming from the middle class mostly from doctors' and teachers' pockets and foreign debt. When normal citizens could feel or see barely any improvement in public service, especially public health service and education, the government's expense always exceeds its income, and the government's budget is always in deficit. To compensate for this deficit, the tax rate has been increasing steadily in the last 10 years and the central bank is printing money to compensate ever-growing government expenses. As a result of all of it, inflation is crazy high right now in Mongolia. People's purchasing power has significantly reduced and prices of common goods in Mongolia can be quite similar to prices in the Czech Republic even though salary in Mongolia is almost 2-3 times lower in Mongolia.  Can you believe it? I can not believe it. 

There is a phenomenon among young people in my country...economic migration is high at this moment. People want to improve their life. Educated ones are getting jobs abroad which are more high-paid and uneducated or ones who have language barriers are getting manual jobs outside Mongolia. Actually, in Mongolia, the funny thing is you can almost see no person who is not college-educated. Whether it is a low-ranked private college located in Mongolia or a high-ranked public or private university in Mongolia or abroad, somehow everyone acquired or is acquiring a college education. I think it is a good and bad thing. It shows 2 things about the education system in Mongolia. One, college is something you can buy with money not with your brain (not all the time, but I saw so many cases like that when I was growing up )and if you have money, you can have a college diploma. It shows how our education system is not going smoothly and is not very qualified. There are a total of 88 higher education institutions 68 public and 20 private. In comparison with our population of 3 million, shouldn't it be more qualified and fewer? for example: the Czech Republic has 10 million of population and yet they have 70 colleges and universities. 

Two, Sometimes also I think maybe everyone is getting educated is not bad thing because Mongolia never can become a highly industrialized country like China or S.Korea or Czechia due to the corruption in politics, lack of investment in technology and science and R&D to obtain high tech to have more productive and updated industries, lack of labor force, high cost of trade and transportation due to geographical position, not having enough highly skilled people in certain specific areas, having a huge amount of foreign debt...But i still hope our government can build basic infrastractures based on our natural resources in the future, to get the benefit of it more effectively, not to end up like some African countries in history which were under the colonial regime of some European countries for centuries, being used for its natural resources like Tanzania for its gold, Congo for its copper, Namibia for its Uranium, Botswana for its diamond. I hope our country doesn't end up in the same fate as natural resource-cursed countries. 

There is a huge difference between educated and uneducated. Maybe being educated even with a low-ranked private college degree will still have a positive impact on someone's life... it might lead to smarter decisions in an individual's life... ? even if he or she is pushed off the edge by a highly competitive labor market or stay as blue collar employee somewhere somehow or end up being manual labor force somewhere in a developed country, college-educated person can still make better decisions regarding life matters in general. right? I believe so. 

Mongolia is a free market and democratic country yet I believe a government's hand is needed at times these days. actually, there is no such country in the world where the government doesn't intervene in the market...

That's why other countries' tax system is very interesting to me which are in better position economically. Specially those countries' tax system and how they spend their tax money is very interesting to me.Anyways, what I want to disucess is not about my personal change. It is about continuing last topic I wrote on my blog which is about taxation system in EU , specially income tax. I am going to show how you can calculate your net salary in Czech Republic. 

Do you know how much the minimum salary in Czechia is today in 2024 ? 

It is 18900 CZK. It is the amount before income tax. If we assume 1 USD equals 25 CZK at worst, it makes it 662 USD after income tax. With this amount of money, if you are a foreigner and if you don't own your own apartment, I think you can rent a room in the suburban area of Prague with 10000 CZK and buy under-nutritional food for 1 month. That's it. It is not that bad. isn't it? it keeps you alive. The average salary in Czechia is 43000 CZK. The Czech Republic has progressive income tax rates which means anything you earn more than 3 times of average salary from employment, you are subject to 23% of income tax and until this rate, you are subject to 15% of income tax. 

Let's calculate the average salary tax: 

Example 1: Let's say your salary is 48000 CZK and you don't have children and you are single working person. 

your payable tax is 48,000*0.15=7,200 

tax credit amount applicable amounting to 2,570 CZK. this is the amount that can be claimed by anyone who has taxable income in the Czech Republic. 

7,200-2,570=4,630 CZK tax

social tax is fixed 6.5 % so 48000*0.065=3,120 CZK 

health insurance contribution is 4.5 % so 4,8000*0.045=2,160 CZK 

so total tax and deduction coming from employee is = 4,620+3,120+2,160=9,900

Net salary is 38,100 CZK. 

But your employer is also paying tax for you. 

24.8% for social contribution and 9% for insurance = total = 4,8000*0.248 +48,000*0.09= 11,904 czk + 4,320 czk= 16,224 czk your employer's contribution. 

Example 2: Working mom with 2 children

Take a working mother of two children with a gross salary of CZK 35,000 per month. In this case, the deposit towards income tax before discounts is 15% of CZK 35,000 = CZK 5,250. However, as a mother of two children, it’s possible to claim:

• A taxpayer’s credit of CZK 2,570.
• Tax discount for the first children: CZK 1,267.
• Tax discount for the second child: CZK 1,860.

The total credits and discounts in this case become CZK 5,250. That is CZK 447 more than the income tax after applying discounts.

Also, the employee must pay from their gross salary:

• 6.5% social tax = CZK 2,275.
• 4.5% health insurance = CZK 1,575.
• This brings net salary after income tax deposits and insurance to CZK 32,027

On top of this, the employer also contributes:

• 24.8% social tax = CZK 8,680.
• 9% health insurance = CZK 3,150.

Example 3:Higher earnings with no children

Take a gross salary of CZK 200,000 per month. In this case, remember that only income up to CZK 131,901 will have a 15% tax rate. The earnings over this amount will have a 23% tax rate. Now, the calculation becomes:

• CZK 200,000 – CZK 131,901 = CZK 68,099 (income over the 15% tax rate)
• CZK 131,901 * 15% = CZK 19,785
• CZK 68,099 * 23% = CZK 15,662
• CZK 19,785 + 15,662 = CZK 35,447 taxable
• CZK 35,447 – 2,570 CZK (credit for the taxpayer) = CZK 32,877 CZK total monthly tax

Taxation system in EU 1 - series inspired by a lecture of Masaryk University

Today I am going to give you some information about taxation system in EU today and how it was before the European union. 

Moreover, you can learn how you can calculate your salary at the end of reading my article if you are working in Czech Republic. 

First of all, before starting bombarding you with too much information, I would like to give some info about origination of European union. First step was taken toward European Union when 6 countries including Italy, Germany and France decided to form a group based on a mutual economic interest in 1957. This cooperation later had become official by including 28 countries and establishing Maastricht treaty in 1993 where euro and European union were created officially. 

Even though free movement of people, capital, goods and services pushed member states to have an integrated tax system, today in EU, we could say that indirect tax system has been harmonized at great extension while direct tax system remained almost sole responsibility of each member states. In EU, taxes are more likely to depend on social security contributions (taxes on labour and their contribution ) rather consumption taxes in comparison with OECD countries, and tax rates in EU is higher than in OECD countries, as a percentage of GDP. 

Even though harmonization of tax systems is still in discussion, today tax system in European member states still differs a lot from each other, one of the ground reasons is that 1970's most European countries were high fiscal pressure countries because they were paying tax at 33% rate of its' GDP while others had a low fiscal pressure. At that time, there were no other countries except Japan and USA, which were paying such high tax.

 It is possible to classify the tax rate of 1970's as below. 

1. High tax rate- high fiscal pressure- Nordic countries ( Sweden, Norway, Finland, Denmark, Iceland) 

2. High tax rate- high fiscal pressure- Rhine countries (Switzerland, Liechenstein, Austria, Germany, France, Netherlands) 

3. Mid tax rate- mid to low fiscal pressure- Anglo Saxon countries ( United Kingdom, United States, Canada, New Zealand, Australia, Ireland) 

4. Low tax rate - low fiscal pressure -Middle eastern countries (Western Asia, all of Egypt and Turkey) 

During tax reform of 1980's, tax rate in European countries, specifically rhine countries increased even more while in other countries showed no significant change. Since then, even though few reforms have been introduced in 1990's and 2000's, it is almost safe to say that pressure on labour tax and income tax has raised even more in Rhine countries, in European countries on average. 

Here, while I was reading this information, I thought that maybe this much high tax base has become a good solid ground for social benefits and better social services being provided by government today,  which is becoming resource for all the public benefits to mass population. Of course, this is not the only reason. There are too many other reasons to mention about.  It is very obvious that social benefit in EU today is way much better than Mongolia. I know there are downsides and advantages to social benefits. But in my eyes, good social service is out of discussion in Mongolia because it doesn't exist at this moment, and we need at least basic one. Ever since I came here, I had been observing everything and comparing it inside me, by having a little of bit jealousy. 

Anyways, back to the topic: 

Today, in Europe current tax mix is approximately as below on average: 

- Taxes on goods and services - 30 % 

- Social security contributions -28,4 % 

- Personal income taxes- 25,6% 

- Corporate income tax- 9,2 % 

- Property taxes -5% 

You could observe that more than half of tax base has consisted of labour tax, higher than any OECD country. Let's have a look at the harmonization of taxes in EU. Here are some examples:

1. Majority of EU member states adopted flat rate tax system. But differences in rate differs a lot. Even though corporate income tax easily distort internal market of EU by affecting employment and investment decisions, countries have been implementing different tax rates depending on what of kind policy they needed, such as protectionist policy or supportive policy. 

2.  Family status is taken into account in the selected countries in three major ways: 

-through the application of a tax schedule that varies according to family status. In this respect the tax unit is the individual in Italy, the Netherlands and the UK, while it is the family in France, Germany, Ireland and (by option) in Spain;  

- by providing tax credits and allowances related to marital status and the presence of dependent children. For instance, a tax credit is provided for children in Germany, Italy, the Netherlands and the UK;  

- by supplying cash transfers or benefit outside the tax system (e.g. cash transfers for dependent children).

 Taxation in CEE (Central European countries) 

1990's most central European countries had centrally planned economies where unemployment didn't exist while industries and enterprises are state owned and are obligated to absorb any employee who's seeking employment and coming to their industry or enterprise, and individuals had this obligation to consume what's given and had no option to save money and choose products and services. This system as everybody knows, had worked out fine for a while, even attracted some western countries, even Mongolia too. But restricted personal freedom and restricted political liberty had leaded to too much dissatisfaction that claimed on change and transformation where democracy crawled in. This system transformation brought a tax reform align with it obviously. In centrally planned economy, taxes were directly collected from state enterprises and there was no such law for tax turnover. Everything was planned based on demand and supply of the state. If there were to be excessive tax turnover, it would have been paid to citizen in form of some material supplies such as children's clothes, floor etc... maybe tax administrator's job was very easy. 

But today, after a huge economic and system transformation, tax administrator has to work for every cent ...The reforms introduced by the New EU countries had to cope with economies in which prices and wages are free to fluctuate, private sector activities become important, there are no controls on the output of enterprises, so that their incomes are not known and payments can be made in various forms and no longer through just one ‘monobank’. This new situation would demand both new tax systems and new tax administrations. Furthermore, these had to be adjusted over the years to conform with the changes in the structure of the economy. It would not be imprudent to say that the tax systems of these countries have come a long way and that from now on they will need more fine tuning than radical surgery. 

Particularities of modern CEE tax systems:   

The closeness of their current tax burdens - in fact these tax burdens are all close to 40 percent of GDP, having come down from higher levels. A tax burden of 40 percent of GDP may be close to, or even lower than, the European average but it is very high considering these countries’ still low per capita incomes. From an international statistical perspective, the tax burden of these countries could be expected to be somewhat lower. Thus, a question that needs to be raised is whether the current tax levels are sustainable over time. It would be reasonable to speculate that they are likely to fall as the transformation of these economies continues. This fall would require a reduction in public spending.  In spite of their high tax levels, all of these countries, with the exception of Estonia, have developed high budgetary deficits, which have been growing in recent years. This implies that these countries have not succeeded yet in reducing the role of the state to a level that can be financed through ordinary tax revenue. The state is still expected to do too much despite various reforms aimed at reducing its role and responsibilities. This aspect could become a problem that would extend beyond the need to meet the Maastricht criteria. The fiscal gap must be closed by reducing public spending rather than by increasing the high level of taxation.  

The extent to which labor income is taxed. This is partly due to the large payments for social security contributions, which in some of these countries, such as the Czech Republic, are among the highest in the world. 

This heavy burden on labor income must be reduced if the development of growing underground activities is to be prevented. This growth of underground economic activities is already under way in several of these countries and is likely to accelerate with the passing of time. 

The almost uniform move towards fiscal decentralization. Undoubtedly this is a political reaction against the powerful central governments of the past. Once the communist regimes were replaced, the citizens of these countries were anxious to have more ‘voice’ and more control over decisions that affected their lives. However, regardless of its political merit, this process of decentralization is likely to constrain future tax reform and to affect negatively future macroeconomic developments. Experience from around the world indicates that it is often more difficult to reduce fiscal deficits in a fiscally decentralized environment.

 The growing use of environmental taxes in these countries. The centrally planned past had left these countries with major environmental problems that affected health and life expectancies. Many in these countries have low life expectancy, perhaps due to the quality of the environment. Thus, the attempt to reduce this problem through the use of tax instruments is one that deserves praise.  

After labor income, consumption is the other tax base that carries much of the tax burden. All these countries have introduced value added taxes, which with some adjustments will conform with the requirements of the European Union. However, there are still too many excises and other small taxes. Some of these will have to disappear in future years. Property taxes are still playing a marginal role. This is not surprising since, until twenty five years ago, there was no or little private property. However, in future years, it would be preferable to give a growing importance to this tax base, especially for financing the local governments, while reducing the reliance on revenue sharing arrangements that transfer to the local governments parts of the revenue from personal income taxes and corporate income taxes.
 

TO BE CONTINUED, I FEEL SLEEPY FOR NOW. 
 
 
 

The strange death of Europe by Dougles Murray

First of all, if you are reading my blog and you are from around the area of Europe or Middle east, please don't get me wrong because i didn't write this book. I am warning from the beginning because writer seems to me like he is very conservative toward immigration, specifically on the topic of Islamic integration into the Europe. Here, i just want to summarize the book and express my idea about the book. 

It is the first book i had ever read about opposite opinion about internationalization and immigration. That's why it was very interesting and i finished reading it. While i was reading the book, i also found out that this political view on migration belongs to the " right wing" political view that gives a priority to values such as authority, hierarchy, order, duty, tradition and nationalization. 

I feel empathy toward 2 sides which one side wants a strict regulation regarding immigration, and another wants a security and a better living condition. Because i had lived in both Islam and atheist environments more than 7 years now. Anyways, back to the book.

Immigration is not a new topic...it has been always there in history... war had been going on and people had been moving around for their life or for a better life. But there should be some starting point in timeline to continue with the topic, right ? 

Writer gives this preceding point as a period after second world war for modern European history. After 2nd world war, countries such as West Germany, Sweden, Holland, Belgium lost their men and in order to maintain the economy, they needed a labor force. Around that time, in 1960's, for instance, Germany invited a large number of workers into their countries to make their industries alive again by expecting that once work is done, Gastarbeiters (german word- guest workers) will return to their homeland, a huge influx of people arrived specially from Turkey. Guess what happened? Against their expectation, the most of people who originally arrived from Turkey as guest workers, decided to stay in the country  by setting a deep root in the country by bringing their families and friends along with them slowly in time. Same thing happened to many cities in Europe since then. You can see the trace of it in London, Berlin, Bruessel, Paris today... since this first big wave of influx to the countries, second wave started back in 2000's from North Africa through Lampudiza island of Italy, as well as through Spain and Greece. There were several reasons behind that Italy could do nothing but to take actions to relieve situation such as to open a migrant camp in the island temporarily. Firstly, taking consideration of the severe tie of being post colony of Italy, North Africa (Algeria, Egypt, Libya, Morocco, Sudan, Tunisia, Western Sahara) had claimed to have a privilege to be legal immigrants in Italy at least if they are not welcomed in Europe at most. More and more hopeful young people arrived in the island from North Africa, later in Italy, believing that they could have a better life in Italy, hoping that their families also can join them soon somehow. However played on their misery, there are some group of people who were benefiting from the situation such as making illegal smuggling, trafficking people to Europe by pocketing the money for the act of intermediary. Journey itself had a price worth life and plus it is impossible not to mention about a risk of gambling their future. Because there was no guarantee to have a bright future, once immigrants arrive in the land they dreamed. During 2000–2005, an estimated 440,000 people per year emigrated from Africa, most of them to Europe. According to Hein de Haas, the director of the International Migration Institute at the University of Oxford, public discourse on African migration to Europe portrays the phenomenon as an "exodus", largely composed of illegal migrants, driven by conflict and poverty. If they didn't find life they wanted in Spain and Italy, they would continue their journey through a whole Europe. 

 

Writer imposes on the idea in one of the chapters that main reasons why Europeans didn't oppose to the idea of  a mass migration happening at a slow and steady rate are that firstly, an overwhelming guilty feeling because most of the migrants are from post colony countries of Europe, secondly, turning down issue itself would be inhumane act not only against European values, but also it has been a matter of fact defending their reputation proudly in front of whole world observing them how Europe would take humanly and exemplary actions toward what was happening in their homes countries. Moreover, aging population of Europe, belief that diversity would bring a good in it, idea that globalization is unstoppable and immigration is inescapable which would have happened sooner or later to any country which in a state of being able to take care of weaker, had pushed each country in Europe to accept more or less immigrants from all over the world in the end. Situation was manageable at least to the point that immigration hasn't become a hot topic until 2014. The main reason behind was a war started in Syria around in 2010. A war affected not only its neighbor countries, but also a war shadow didn't miss Europe. Now thinking back of it, i remember i used to see many people sitting on the streets of small towns of Turkey. Back to 2010, i didn't know a lot about relationship between Turkey an Syria and Syrian asylum seekers. More i try to remember about the what i had seen through my daily life back then, more i feel that rubyk's cube is being solved. As almost everyone knows, another triggering event was 3 years old's photo (a boy who died in Turkey while trying to reach the Greek Kos ireland) which was going viral in mass media all around the world back in 2015, followed by Angela Merkel's approval (through her speech that she told "Wir schaffen das" and political power winning strategy) to welcome 1 million refugees. That's how European migrant crisis began.

But as you can see, there were not only asylum seekers but also economic migrants...

According to the book, a multi-culturalism didn’t work out as Europeans hoped it would because most of the terrorist attacks happened since the start of mass migration, have been organized by the people who are asylum seekers holding that country’s passport or refugees who had grown up in that country they terrorized. Any voice arisen against the religion of Islam from political field cut down, and any display of art or novel which seems to oppose the idea of Islam has been encountered with threatening to life. Maybe, writer’s right at some point. Because being powerful in politic requires approval of mass no matter the idea itself right or wrong. Cost of the wrong decision has been paid at a sacrifice of the public. Some decisions are wrong from the beginning but can’t be fixed and retaken into consideration to step back due to the reason political bodies are supposed to stand still and tall behind their decisions in order to maintain their dignity and reputation in the eyes of public. Integration can happen if only 2 cultures can accept one another. But some cultures are too strict and too traditional that it can’t tolerate certain actions of other cultures, only requires others to adapt to it. As a result, through time, it becomes the core culture wherever it goes until it becomes a new normal…even if it fails to become a core culture inside the country, it will always carry its a parallel society and community inside the country. Writer's idea about the immigration is that integration can't happen truly in reality in case of Islam and people who're claiming their identity with Islam. I can't blame a writer's idea about immigration as racist. Because his view point is partially true that some of refugees who couldn't receive respect in a new society starting having a resentment toward people of that country which is not only emotional but resulting with physical violence toward innocent civilians as them. 

There is also an obsession throughout the book that Europeans are concerned — despite growing atheism — that Islam will overtake Christianity as the dominant religion...I highly doubt about it. But only thing i know for certain that Muslim people take a pride in their religion very highly that anything disgracing their belief will go through a tough argument at least. Moreover, i guess it is safe to say that challenge for women is too high in the process of disagreement. 

As i see that for someone who's desperate enough to move to a new country to start a new life due to whatever the reason such as economic condition, civil war etc, if pride is more important than living in comfort and security, then i can't really say that one is running for his/her life and one is desperate enough for a better life... They must learn to fit in to survive. Btw, Fitting in is interesting topic itself which can't be done forcefully but only voluntarily...

...Lastly, Rather than declaring the continent as “dead,” it might be worth considering also that every generation faces unique challenges for which they must find new solutions. It was interesting book to catch up with what was happening in Europe and how people were reacting to this unusual historic milestones. Because this book displays a different idea and opinion on the topic from what you can see from the media...