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Much has already been said and written about the consolidation package, which will gradually come into effect next year, and much more will certainly be said and written. Often unflattering, because some shortcomings and unused opportunities are glaring.
In connection with the news about how sharply interest in luxury cars has grown this year, it is worth mentioning one partial measure that is quite rightly included in the package. And which, although its budgetary contribution is rather negligible and will have a longer run-up, brings a much-needed element of reason into the Czech tax system.
Until now, it has been the case that if an entrepreneur buys a car for the purpose of doing business (which can be translated with regard to practice as “whenever any entrepreneur buys any car”), he can include its purchase price as an expense, i.e. reduce his profit by it, and therefore also the tax base. And this is completely regardless of what kind of car it is – and how expensive it is.
In other words, until now it was true that if your company was doing well and you decided to travel to a popular Swiss ski slope in a new Lamboghini Urus for eight million crowns, you bought the car so-called “for the company”. And you reported eight million as a business expense – because somehow you have to drive to customers – and reduced your tax base by it. So the tax liability was immediately 1.5 million crowns lower.
So the state collected 1.5 million less in taxes from you than if you had not bought the lambo. Which is such a premium subsidy or discount that a simple rich employee has no chance of reaching. And on which, as a result of a rich entrepreneur, all taxpayers agree. Of course, including those who will never be able to afford an urus, even if they happen to desire one due to a sudden loss of taste or eyesight.
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The consolidation package introduces a price ceiling of “the first two million crowns from the car’s purchase price” for cars included in business expenses. A successful entrepreneur will therefore continue to be able to purchase a status ship of a luxury brand, however, in the described case, he will only deduct two million from the profit. The other six will normally have to be taxed as their business profit. This will reduce the “subsidy” to 380,000.
It is an all-round sensible measure.
On the one hand, there is no reason to prevent entrepreneurs from reporting the purchase of a car as an expense of their business – on the contrary, this is quite correct. It would certainly be possible to distinguish which car is really related to business and which is just a means of personal pleasure and tax optimization – the Germans do it that way. But it would be administratively demanding and, in Czech conditions, prone to finding various tricks.
On the other hand, the situation where even super-expensive super sports or super luxury cars enjoy a tax benefit – moreover, limited only to business persons – is simply absurd. The change does not in any way limit the right of an individual to show his status or interests by owning any car. It’s just that ordinary taxpayers will subsidize it less than before. It’s actually a little crazy that something like this needs to be written at all and that there was no cost limit for a business passenger car for 15 years (before 2007, yes).
The way of adjusting the ceiling, which comfortably fits the vast majority of truly “company” passenger cars and which even for very expensive cars for four million crowns allows you to “deduct” half of their price, appears to be completely adequate. Dealers of luxury brands express concern about how bankers will look when they arrive in a Fiat Cinquecento for a meeting with a client after the change in tax conditions. To reassure them and any frightened bankers, let’s say that between a used Panda (I couldn’t find a cinquecento) for 45,000 crowns and a car for two million, there is a wide range with a wide range of new and used cars.
The Czech Republic has historically had its fair share of tax legislation around cars. Famous is the period between 2004 and 2009, when entrepreneurs could request a VAT refund for so-called category N1 vehicles, simply put, small trucks. To qualify for this category, the vehicle had to have a fixed partition between the cargo and passenger compartments. As a result of this legislation, you may still find the (then popular) Porsche Cayenne and various sports cars with a completely senseless grille between the luggage compartment and the seats in bazaars. Fortunately, this absurdity ended in April 2009.
However, the unlimited reading of a business car is the other extreme. It’s also obvious stupidity to contribute recklessly from the state to whatever anyone (entrepreneur) wants to ride in.
The price cap on the car tax deduction is not exactly a “right-wing” measure from the government’s point of view. The change itself will affect the richer ones to a certain extent, but the Pirates also stuffed it into the consolidation package. But it is a breath of common sense, which is otherwise very rare in the Czech tax system.