Transitional Success USSR to EU — страница 8

easy avenues for tax evasion and avoidance as cash is barely trackable. Many of these tax reforms will become obsolete as the Czech Republic bids for EU membership. Czech will have to compete with EU tax codes, one example entails small breweries. Parliament passed a law on EU guidelines that allows a larger consumption tax on alcoholic beverages to be granted only to small, independent breweries. Breweries producing less than 200,000 hectoliters per year will be eligible for consumer tax cuts of up to 50 percent. The law sets a progressive rate up to the minimum margin limit. Though it may seem straight forward, experts are unsure whether this brings the tax code closer to EU standards or drives them farther away. Are they protecting small business, providing tax shelters to

favored companies, or preparing for entrance into the EU? Currently no one knows. The tax reform process is slow. Though much has been accomplished on the books, no one is really sure what the final outcomes will be. One suspects, as with many recent development in the Czech Republic, change will gravitate toward EU standards wherever possible. As the potential for EU membership draws near, one can expect many of these seemingly confusing tax issues to be clarified immediately as the Czech Republic attempts to do business with one of the most developed and powerful economic forces in the world. Current Political Economic Considerations: 1996 Perhaps the most exciting chapter of the Czech political and economic transition is still to come. In November 1995, the Czech Republic

signed a membership agreement with the Organization for Economic Cooperation and Development. The Czech Republic is the first CEE country to enter the ‘rich boys club.’ The Czechs furthered their status by recently declaring that they were now considering themselves a ‘developed’ economy. Though perhaps a bit premature and self-serving, OECD membership certainly entitles them to make such a claim. Many more economic issues still need to be addressed however, before transition can truly be considered complete. The Czech Republic should reach growth levels of 7 percent this year. That growth needs to be achieved for the next ten years to simply double their income, and even then they will remain far behind their western neighbors. Current GDP in the Czech Republic is only

about $3500, which according to the World Bank, ranks them near Malaysia. Fortunately, unemployment is practically non-existent at about 3.2 percent, the lowest rate in all of Europe. And the Czech trade deficit runs about 5-7 percent of GDP. Some experts suggest that rapid appreciation of the crown in recent times is to blame. Furthermore, wages are a problem. Though they remain low, they are rising very quickly even with governmental controls. To stay competitive Czech business must increase productivity. This tends to be very difficult without cheaper capital. Though tax designs are in place to ‘cheapen’ capital, it is not immediate nor as effective as necessary. Finally, average savings rates throughout the CEE are about 18 percent, which is just half of the very

successful East Asian Tigers (and two to three times that of developed economies). Czech needs to decide how fast and how much more they will grow in the near future. Regardless of some of these more negative indicators, Czech has made a significant transition. The numbers above simply indicate that their journey is not yet complete. OECD membership is just a small step toward the Czech’s ultimate goal of EU membership. The Czech Republic is revamping their policies in order to comply wherever possible to EU regulations, guidelines and policies in order to facilitate their membership bid. Some of these changes include a decrease in the number of income tax brackets, decreases in the VAT from 22 percent to below 20, and the end to all tariffs with EU countries by 1997 (excluding

“sensitive products”). These changes are helpful to the Czech economy but slightly premature. Experts claim they are done solely to impress the EU application reviewers. The EU and NATO EU membership is inextricably tied to NATO membership. It is important to understand the similarities and differences between these two organizations, especially as they concern the Czech Republic and the continuation or completion of the transition. The transition is both economic and political and therefore should be examined in terms of both EU and NATO powers. The EU and NATO are arguably the most advance powers economically and politically in the world. NATO includes the US, while the EU, of course does not. It is interesting, then, that many claim EU membership is virtually predicated on