Drastic change to affect Czech taxation

23-05-2003

Next year people in the Czech Republic will pay more to have their hair cut, to have their shoes repaired and to make a telephone call. These are just a few consequences of the biggest change in Czech taxation during the last ten years.

Thursday's parliamentary session left Czechs in for a big surprise as it approved a change in the VAT rates. Some of the changes will go into effect as soon as January of next year, not in May of 2004, as was originally planned. The value added tax on a variety of goods and services will jump from five to 22 percent.

The goods affected by the new law include those which are environmentally friendly, such as paint materials, recycled paper, and solar and wind power generators. Prices for internet use, charges on both mobile and fixed line phones as well as services provided by real estate agents, lawyers and accountants fall into this category. However, prices of foodstuffs, medicines, books, newspapers, and magazines will not be affected by the new law.

What will this increase mean for the Czech economy and for consumers? Economic analyst David Marek pointed out how the parliamentary decision is influenced by the Czech Republic's planned membership in the European Union.

"It's something that is necessary for the Czech Republic according to our ambition, our aim to be a member of the European Union. So, we will have to adopt all necessary changes according to the Acquis Communautaire. As for people, we should prepare for several ways of price increases, an increase in the price level in the Czech Republic. It's not only a case of VAT but also a case of excise taxes, so from January to May of next year, we can expect that some services and some goods will be more expensive for households in the Czech Republic."

While there is no rule that VAT of European Union countries must be at 22 percent, Mr. Marek elaborated on the VAT tax procedure.

"There is no prescription for exact tax brackets of VAT, but there are some rules as for applying standard VAT rate and reduced rates, and it is prescribed that several kinds of goods can be taxed at a lower tax rate, and others should be taxed at a higher tax rate."

The latest changes are not the last as the government has already proposed an increase in consumer taxes on tobacco, alcohol and fuels. Whereas companies can be looking forward to a reduced corporate tax rates, these changes will not be offset by a reduction in personal income taxes for ordinary people. Although economists point out that the overall tax burden in the Czech Republic is quite high compared to other European countries, no reduction in personal income taxes is foreseeable.

23-05-2003