Changes to austerity package increase tax on alcohol and lower it on e-cigarettes

The coalition parties in the Czech government have agreed on several adjustments to the government draft budget recovery package, Prime Minister Petr Fiala announced following negotiations that went on past midnight last night. 

One key highlight is the preservation of a tax advantage for employee benefits, albeit limited to half of the average wage in the preceding year. This move was in response to the demands of both employers and trade unions who advocated for retaining this tax advantage that had originally been scrapped.

The coalition has also agreed on a small alteration in the value-added tax (VAT) system compared to the original proposal. Finance Minister Zbyněk Stanjura clarified that the VAT rate for magazines and newspapers will now be standardized at 12 percent. Notably, the initial government suggestion had outlined a 21 percent VAT for newspapers. This bodes well for the Czech print-media industry, Lidovky.cz notes.

Another change is that 100 percent of property tax revenue would remain with municipalities in exchange for a CZK 10 billion reduction in the shared tax revenue. Additionally, adjustments have been made to the distribution of gambling tax revenue. The state's share will increase from the current 35 percent to 55 percent, while municipalities will keep 22.5 percent based on the number of authorized slot machines.

From January 2024, businesses will also have the option to maintain their accounts in foreign currencies such as euros, dollars, and pounds, if such currencies are their functional choice.

Fiala underscored the complete agreement on the parliamentary procedure for further discussions about the package among the coalition parties. A comprehensive list detailing the agreed-upon revisions will be published by the Finance Ministry today, Fiala added.

Several contentious points have also been settled. The previously disputed tax exemption for beekeeping income remains untouched. Additionally, the newly proposed excise tax on electronic cigarettes and nicotine sachets will not be as steep as initially proposed.

Concerning alcohol excise tax, the coalition has expedited its incremental increase. Originally, a 10-percent hike was proposed for the next year, followed by 5 percent for the subsequent three years. This has been revised to a 10-percent increase for each of the next two years and 5 percent in the year that follows.

The government, back in May, had estimated that the proposed consolidation package measures would enhance the state budget by CZK 97.7 billion in the upcoming year, and generate potential savings of up to CZK 150.7 billion combined for 2024 and 2025. The original form of the package aimed to amend 63 laws, mainly focusing on eliminating tax exemptions and introducing simplifications.

With the aim to have the package ratified by year-end for implementation in the following year, it is projected that the bill could bring an additional CZK 35.2 billion to the state coffers in 2024.