Tax reliefs of Czech government to combat the crisis

21. July 2022

The global economy did not have the chance to recover from the pandemic yet and it was hit by the Ukraine – Russia war. This has triggered faster inflation and slowed down the economic growth. Not just in the Czech Republic, but globally. High prices of oil, natural gas, food and other items worry the people and governments all over Europe. Czech government tries to combat the fast growing inflation with various tax reliefs and other measures. This article gives an overview of the most important ones. Only time will tell, how successful this effort is going to be.

Reduction of excise tax on petrol and diesel

Amendment No. 131/2022 to the Excise Tax Act temporarily reduces the excise tax on diesel and unleaded petrol by CZK 1.50 per litre, effective from 1 June to 30 September 2022.

For the purpose of price control, the Czech Ministry of Finance extended the monitoring of fuel prices to the entire distribution chain in May and prolonged it until the end of September. The aim of this extended control is to ensure that fuel distributors reduce their wholesale margins to pre-war levels and, above all, to ensure that the reduced excise duty does not remain in distributors’ margins but is fully reflected in final prices for drivers.

Abolition of road tax for selected vehicles

On 8 June 2022, the Act amending Act No. 16/1993 Coll., on Road Tax, as amended, was published in the Collection of Laws under No. 142/2022 Coll. The Act took effect on 1 July 2022 and contains measures against the growing fuel prices, in particular a significant reduction in the subject of the road tax and road tax rates. The amendment is abolishing the road tax for cars and trucks weighing up to 12 tonnes. The government sees this measure as helping small and medium-sized companies in particular, and the cancellation is intended to be permanent.

The intention was to cancel the advance payment for the first quarter of 2022 already, due on 15 April 2022. 

With regard to the fact that the amendment to the Road Tax Act was not likely to be processed and approved before the due date of the first 2022 quarterly advance payment on 15 April 2022, the Minister of Finance has waived the payment of quarterly advances for the road tax for the entire year 2022. After the final approval of the amendment the road tax was abolished for vehicles weighing up to 12 tons from 2022, no payment obligation arises for these vehicles retrospectively for the whole year 2022.

However the legal advance payment waiver applies to all vehicles regardless of their weight. Thus, beyond the original intention of the government, there has been some relief for haulers using vehicles weighing more than 12 tons. This support is only in the form of the option to defer the payment of the road tax, as the amendment abolished the tax only for low-weight vehicles. If the deferral is used, the road tax on these vehicles will only be paid on the basis of the road tax return to be filed for the entire year by 31 January 2023. Additionally, to this option there is also a significant reduction of road tax rates to the benefit of the haulers of big trucks meaning an important fiscal benefit for those companies. 

VAT exemption for gas and electricity supplies

The former Czech government introduced VAT exemption on gas and electricity supplies for November and December 2021. An amendment to the law allowing the exemption to be applied for another period has not been approved.

After a review, the current Minister of Finance assessed the decision of his predecessor to waive VAT on gas and electricity supplies in November and December 2021 as unlawful (in breach of the Code of Tax Procedure and EU law) and cancelled the decision. What is relevant is the fact that the decision is cancelled as of the date of the entry into force of the decision in the review proceedings, i.e. with ex nunc effects, and not retroactively. As a result, claimed VAT exemption will not be questioned, so there is no need to file additional returns or issue corrective documents for this reason, and the purchasers cannot claim the tax deduction retrospectively. 

Increase in the living and subsistence minimum

As of 1 April 2022, the government approved an increase in the living and subsistence minimum in response to the current household situation of high inflation and rising energy prices. The living and subsistence minimum increased by 10 % and affects some other social benefits. More money will also be given to those, who receive subsistence allowance, housing allowance, foster care allowance or extraordinary immediate assistance.

  • The subsistence minimum is increased from CZK 2,490 to CZK 2,740
  • The living minimum is increased from CZK 3,860 to CZK 4,250
  • In the area of enforcement, the debtor’s non-forfeitable amount is increased from the original CZK 8,006.25 to CZK 8,298.75 and the new non-forfeitable amount for each dependent is increased from the original CZK 2,668.75 to CZK 2,766.25.
  • The most widespread benefit, parental allowance, is not linked to the subsistence minimum and therefore does not change in any way. However, there are various government bills to increase the parental allowance as well. 

Increase of the minimum wage

As of 1 January 2022, there was an increase in the minimum wage from the former CZK 15,200 to the amount of CZK 16,200. This has been accompanied by an increase in the minimum guaranteed wages in eight job groups, differentiated mainly according to their complexity and responsibility.

The government has been currently discussing a possible increase covering the inflation growth.

Discount on insurance contributions for selected groups of employees

Czech government introduced an amendment to Act No. 589/1992 Coll., on social security contribution and contribution to state employment policy. The Government wants to motivate employers to create and offer more part-time jobs, which should increase the employment of persons who, for certain reasons, cannot perform full-time work. The amendment provides for an employer social security discount for selected groups of employees reaching 5 % of the total assessment bases for insurance contributions.

Categories of employees to be affected by this amendment:

  • an employee over the age of 55,
  • an employee, who is a parent or adoptive parent of a child under 10 years of age,
  • an employee caring for a close person under 10 years of age, with 1st to 4th degree of dependence on the assistance of another person,
  • an employee who is also preparing for a future career by studying  
  • an employee who, in the 12 calendar months preceding the calendar month, for which the premium reduction applies, has entered retraining as a jobseeker,
  • an employee who is a person with a disability as defined in article 67 paragraph 2 of the Employment Act; or
  • is under the age of 21. 

Conditions for entitlement to the discount

With the exception of employees under the age of 21, for other groups of employees, the condition for claiming the discount will be the employee’s agreed weekly working hours ranging from 8 to 30 hours. If an employee performs more than one employment with the same employer in an employment or service relationship, the employer social security discount is due only from one employment; the limit on the number of hours applies to all such employments together. Another condition is the setting of a maximum monthly assessment base. If the employee exceeds 1.5 times the average monthly wage, the employer is automatically no longer entitled to the lower premium rate. 

How will the discount be applied

Employers will be able to state the social security discount on a form summarising the amount of the assessment base and the amount of the social security contributions. The social security discount will be deducted by the employer from the amount of the social security contributions paid for each calendar month and cannot be applied retrospectively. 

The neverending marathon of the CNB interest rate increase 

Czech National Bank tries to combat the fast growing inflation by increasing the interest rates. In 2021 the interest rates were increased five times, in 2022 four times, so far. The last increase was approved by the Board of the Czech National Bank as of 23 June 2022. The current basic interest rates in the Czech Republic are following:

  • the two-week repo rate 7.00 %, 
  • the Lombard rate 8.00 %,   
  • and the discount rate 6.00 %

The above rates are going to affect e.g. the morgage interest rates as well as interest rate on late payments of taxes which is currently sitting at 15.00 % p.a. (8 % + two-week repo rate).

Author: Daniela Riegel, Roman Burnus, Lukáš Pflug

Author: Daniela Riegel, Roman Burnus, Lukáš Pflug