Analytic hierarchy process in Czech taxpayers' decision-making regarding their tax liability

Abstract

The article deals with taxation of the earned income of natural persons in the Czech Republic in 1993-2017. The goal is to select the year when the tax burden on the earned income of natural persons was the lowest depending on the taxpayers' preferences, their income level and the number of tax deductions they were entitled to. Based on their income levels, taxpayers analyzed the elements constituting their tax liability and decided whether it became smaller or larger in the given periods. The research methodology includes methods of description, comparison, analysis and synthesis and methods of multi-criteria decision-making. The decision-making analysis focuses on model situations which differ from each other in terms of the amount of gross wage and the number of deductions applied. It is concluded that in most cases, the replacement of the progressive tax rate by the linear rate in 2008 lead to a reduction in the tax burden. The highest decrease of tax liability was observed among taxpayers with below-average incomes. Taxpayers with above-average incomes were subject to a higher tax liability when the nominal tax rate was progressive. Tax credit is yet another factor that influences tax liability; for taxpayers whose income is less than average it takes a form of tax bonus. The most significant change in the legislation regulating income taxation occurred between 2007 and 2008. According to the evaluated criteria weights, the most import criterion for Czech taxpayers is the effective tax rate. The weights of criteria in multi-criteria decision-making analysis were established by using the results of the questionnaire survey conducted by the author among 189 respondents at a manufacturing company in Zlin region.