The Czech government coalition parties have reached a consensus on a series of revisions to the draft budget consolidation package, as announced by Prime Minister Petr Fiala after late-night negotiations. The agreed-upon amendments are fiscally neutral, with no impact on the scope of budget consolidation efforts.

One significant revision involves retaining the tax advantage for employee benefits, albeit limited to half of the average wage from the preceding period. This change comes as a response to calls from both employers and trade unions to preserve this tax advantage.

Additionally, the coalition has reached an accord on adjusting the value-added tax (VAT) system. Under the new agreement, the VAT rate for magazines and newspapers will be harmonized at 12%, in contrast to the original proposal of 21% VAT for newspapers.

Another alteration involves municipal property tax revenue. Municipalities will now retain the entirety of this revenue, while in exchange, there will be a CZK 10 billion reduction in shared tax revenue.

Furthermore, a change in gambling tax distribution was settled. The state will receive 55% of gambling tax revenue instead of the previous 35%, while municipalities will retain 22.5% based on the number of permitted slot machines, along with a similar proportion allocated according to population.

Starting from January 2024, businesses will have the option to maintain their accounts in foreign currencies like euros, dollars, and pounds, provided it aligns with their functional currency.

The Prime Minister emphasized that the coalition parties unanimously agreed on the approach for the budget’s further deliberation in the parliament. The coalition comprises the Civic Democratic Party (ODS), the Christian Democrats (KDU-CSL), TOP 09, the Mayors and Independents (STAN), and the Pirates.

A comprehensive list detailing the agreed-upon changes will be released by the Finance Ministry at a later time.

The contentious tax exemption for income from beekeeping will remain unaltered following this agreement.

While the proposed excise tax on electronic cigarettes and nicotine sachets will be moderated from the original proposal, the excise tax increase on alcohol will be accelerated compared to the initial plan.

The coalition plans to discuss these joint amendments during a lower house budget committee meeting, which, if approved, would be treated as a committee proposal rather than individual MPs’ proposals in the legislative process.

The government aims to approve the consolidation package by year-end for implementation in the coming year. The package, as initially outlined, is projected to enhance the state budget balance by CZK 97.7 billion next year and yield savings of up to CZK 150.7 billion over 2024 and 2025.

The present version of the bill focuses on generating an additional CZK 35.2 billion in state revenue next year. By 2025, when the elevated corporate tax rate takes effect, state revenues are expected to increase by CZK 37.1 billion. The bill under discussion does not encompass planned cuts in subsidies and reductions in state expenditures, which are anticipated to account for around half of the envisaged budget savings.

Article by Prague Forum