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Companies did exceptionally well last year, and the state is benefiting from this in terms of taxes this year as well. Simona Hornochová expects that, just like last year, over a trillion crowns will be collected. “I think it will be similar. This year’s tax revenues will be reflected in the exceptional year 2022, when many companies realized significant revenues,” says the Director General of the Financial Administration.
Companies from the energy, fuel and banking sectors will withdraw the most this year – due to rising energy prices and high interest rates. It is on these industries that the government introduced a tax on extraordinary profits. However, the expected 85 billion will not be collected, Hornochová confirmed.
“We currently hold estimates of around 40 billion. But there is still one December deposit left, which will be decisive. But I wouldn’t expect much more,” she said in the program Agenda SZ Byznys.
Sweaters and frozen seniors? Disaster did not come
This is not good news for the state coffers, but according to Simona Hornochová, the lower income from the “windfall tax” is also proof that the expected brutal increase in the price of electricity has not occurred.
“A year ago, everyone painted catastrophic scenarios, how we have to buy x sweaters and after the winter season we will find frozen seniors and pay hundreds of thousands of electricity bills. None of that happened.”
Instead of 33 billion, the state will eventually collect only a few billion crowns from the banks, according to the results of the six largest banks. What the collection authorities do not get from the banks, they partly collect from their clients. Savings in savings and term accounts, where money from current accounts flowed this year due to increased interest rates, are subject to a 15% withholding tax. This year there will be dramatically more people than last year.
Income tax collected by withholding from legal entities and natural persons increased by 41.5 percent year-on-year as of November 28, the Financial Administration reported for SZ Byznys. Collection thus increased year-on-year by roughly 13.7 billion crowns.
“The banking sector responded by raising interest rates on citizens’ deposits, time deposits, and savings accounts, which is positive news for me. As a result, we collect more withholding tax, so that (low collection from extraordinary tax, editor’s note) compensates to some extent, at least in the banking sector,” said Hornochová.
According to her, it is good that the state did not impose an extraordinary tax on income in 2022. It saved a lot of money and worries.
“I was very happy that the Minister of Finance decided not to undergo retroactivity and not to deliver the profits back to 2022. Because there was a real threat that the Financial Administration would return not only that tax, but also relatively significant sanctions in the form of interest from the illegal actions of the tax administrator.”
Big tax changes coming in January
With January 1 next year, a number of things are changing in the tax system. The consolidation package, with which the government wants to put public finances in order, increases several taxes. The property tax will almost double. The “tax for the rich” will change.
The most money of all taxes flows into the budget from VAT. However, households are not currently spending, and the growth of value added tax revenues is thus slowing down this year compared to last year. “The decline in consumption is drastic and the mood is not improving at the moment,” states Hornochová.
VAT is also expected to undergo major changes from January. Instead of three rates, there will be only two, 21 and 12 percent. A number of items will move to a different rate. Beer and soft drinks move to the highest rate of 21%. Food and medicine will jump from 10 to 12 percent, and books will drop from a 12 percent rate to zero. And food goes from “fifteen” to 12 percent.
Discount due to VAT? Just marketing
Tax experts mention that while after any VAT increase traders will almost immediately raise prices, they will usually keep the VAT reduction on the margins. Hornochová has a similar experience.
“Statistical probability is a de facto law of nature, I can hardly deny that this is true, most of the time. In purely layman’s terms, not based on any deep analyses, we note that at the beginning the reduction of VAT for promotions serves as a discount by that rate. And then it kind of settles down.”
At the same time, the most money escapes the state through VAT. The so-called tax gap, which is the difference between how much was actually collected for VAT and how much theoretically could have been collected based on the performance of the economy, is currently seven percent, leaving the state with between 30 and 50 billion crowns. At the same time, eight years ago it was roughly three times as much.
According to Hornochová, the gap is shrinking the fastest in the European Union. “There is no dispute at all that this is the analytical activity of colleagues from the Financial Administration,” says their boss. The introduction of control reporting also helped.
Pre-filled “tax slip” coming soon
The Financial Administration is currently preparing a new system that aims to improve tax collection even further.
“We are completing the construction of the data warehouse, because for us it is the alpha and omega of more vigorous, more precisely targeted, faster analytical activities,” says Hornochová. All data available to the administration will now be in one place.
The system monitors the economic results of companies and compares their behavior in certain segments. “When the Financial Administration detects a tax problem, tax optimization, they find out across the market if it is an anomaly,” the director of the FS explains the principle.
“It will be the entry of the Financial Administration into the 21st century, after all, also in terms of the services that the Financial Administration will then be able to provide,” says Hornochová.
In 2026, the first taxpayers will receive a pre-filled tax return from the “financier”. “We are still aiming for that date. It is the critical information infrastructure of the state. We cannot allow it to fail, because then we would not collect a single crown for the state budget and the state would have nothing to function from,” explains Hornochová.
That is also why pre-filled “tax forms” will be added gradually. It will be tested on income tax from dependent activity and real estate tax.
Higher taxes are overrated
Companies are currently subject to an income tax rate of 19%, but this will increase to 21% from next year. Finance Minister Zbyněk Stanjura (ODS) promises an additional income of 22 billion crowns for the year 2025. Because of this, Hornochová does not expect any major optimizations in corporations.
“Restructuring companies and groups takes a long time and costs a lot of money. A major reorganization is not worth it because of two percentage points,” he says.
Corporate taxes in the Czech Republic will approach the European average after the New Year, but will be the highest within the Visegrad region. According to the head of the Financial Administration, there is no danger of an exodus of Czech companies to countries with lower taxes. “Tax effects are overestimated, in reality it is about the degree of various incentives for companies. And investors rather acknowledge legal stability.”