The Czech Republic is a democracy with a parliamentary political system, in which the parliament elects the president. The electoral system for the Chamber of Deputies is proportional, meaning that individuals tend to vote for specific parties rather than for specific candidates. After the elections, each party receives a number of seats in parliament according to the percentage it receives of the vote, provided it receives at least 5 percent. Each party organizes a list of individuals that they will send to the parliament to fill their allotted seats. The elections for the Senate are conducted according to single member districts, in which a single candidate wins a majority vote in each of the 81 Senate districts.
The Czech president is elected by the parliament and serves a 5-year term. Václav Havel was elected in 1993 and reelected in 1998, although he was not affiliated with a particular political party. The 200 members of the Chamber of Deputies are elected for 4-year terms. The 81 Senate members are elected for 6-year terms, with one-third of the Senate elected every 2 years.
The first parliamentary elections to be held in the independent Czech Republic took place in 1996. The party that favored immediate free market reforms, the Civic Democratic Party (ODS), and the party that favored a slower pace to free market reforms, the Social Democrats (ÉSSD), emerged as the most powerful parties in the Chamber of Deputies. A political and economic crisis led to early parliamentary elections in 1998. The third most significant party in the Chamber of Deputies elections was the Communist Party (KSÉM), followed by the reformist Christian Democrats (KDU). Other significant parties include the nationalist Republicans, the free-market oriented Civic Democratic Alliance (ODA), and the conservative Freedom Union (US).
The government has directed the complex process of transforming the economy from a centrally planned communist system to a market-based system. Each reform has required the passage of new laws and the implementation of new regulations. Among other general market reforms, a Commercial Code was adopted in 1991 under the Czechoslovak state and was revised in 1996. It outlined legal protections for private property and business activities for both Czechs and foreigners. Other reforms included a Foreign Exchange Act establishing the Czech currency as convertible abroad, and a Trading Act to set conditions for trade.
Part of the economic reforms involved the privatization of assets and companies that had been the property of the state. In 1990 and 1991, under the Czechoslovak state, some property, such as farms, shops, and homes, was given back to its pre-communist owners. The privatization of small enterprises was completed through auctions by the end of 1993. The privatization of large enterprises was a more complicated process involving vouchers that allowed citizens to buy shares of some companies. It also included direct sales, auctions, and free transfer. More than 80 percent of former state assets had been privatized in 2000.
The government obtains revenues through several different taxes. There is a progressive personal income tax that ranges from 15 to 32 percent. The corporate income tax is 31 percent, although investment companies and pension funds are taxed at a rate of 20 percent. Some tax holidays are offered as part of an effort to attract foreign investment. Other taxes include property tax, road taxes for business vehicles, inheritance tax, and fees for administrative services. In addition, a value-added tax is imposed on all goods except necessities such as food and health care. Excise taxes , customs duties , and real property transfer taxes also bring in government revenues.