Vláda představila úsporný balíček

Government unveils austerity package

The government has presented an announced set of measures intended to help consolidate public finances. Selected planned changes in tax and related areas are summarised below (more details HERE and HERE). Most of these changes are proposed from 1 January 2024.

Corporate income tax

• Increase the corporate income tax rate to 21 % (from the current 19 %).
• Limiting the tax deductibility for the purchase of passenger cars for business purposes to the first CZK 2 million of the car price.
• Elimination of tax deductibility of silent wine as a gift up to CZK 500 for representation.

Personal income tax

• A higher tax rate of 23% will apply to monthly income of employees exceeding three times the average wage (today approximately CZK 121,000) compared to the current limit of four times the average wage (today approximately CZK 161,000). An analogous reduction in the threshold for the higher personal income tax rate on an annual basis from 48 times the average wage to 36 times the average wage.
• Limitation of the exemption for the sale of securities and shares in companies (the current exemption of income from the sale of securities from personal income taxation up to CZK 100 thousand per tax year is maintained, while the exemption of income from the sale of a security/share in a company is newly limited to CZK 40 million per taxpayer if the time test of 3 years or 5 years between the acquisition and sale is met).
• Change to the spousal tax deduction (only for spouses taking care of children under age of 3).
• Abolition of the so-called kindergarten tax deduction.
• Abolition of the student tax deduction.
• Abolition of the tax exemption for non-cash benefits to employees.
• Abolition of the tax exemption for excess meal vouchers.
• Reduction of the exemption for income from raffles and gambling (from CZK 1 million to CZK 50 thousand).
• Abolition of deduction for union membership fees.
• Consolidation of selective exemptions into a general non-purpose limit of up to CZK 50 000 per year.

Insurance

• Reintroduction of employee sickness insurance at a reduced rate of 0.6 %.
• Gradual increase in the minimum assessment base for social insurance contributions for self-employed persons from the current 25% of average wages to 40 % of average wages.
• An increase in the percentage threshold of the tax base for calculating the social security contributions of self-employed workers from the current 50 % to 55 %.

VAT

• Reduction of the number of VAT rates to a basic 21 % and reduced 12 % rate (previous two reduced VAT rates of 15% and 10% replaced by a single reduced  rate of 12 %).
• The unification of the reduced VAT rates effectively reduces VAT on a range of goods and services such as water and sewerage, heat, transport, food without beverages, medicines or building work, child car seats or funeral services.
• Occasional public passenger bus services are moved from the standard VAT rate of 21 % to the new reduced VAT rate of 12 %.
• On the other hand, services that were included in the reduced rate for reasons that have now passed (covid crisis, EET obligation) will now be subject to the standard rate. In particular, hairdressing and barber services, draught beer, services of authors and artists, collection, transport and landfill of municipal waste, repair of shoes, leather goods and bicycles, cleaning services, firewood, newspapers.
• Items not specifically listed above that are currently subject to one of the reduced rates will be subject to the new single reduced rate.
• In addition, a special zero VAT rate is going to be introduced on books.

Excise duty

• Periodic excise duty increases on cigarettes, smoking tobacco, cigars and cigarillos by 10 % in 2024 and by 5% in each year 2025-2027. Periodic tax increases on heated tobacco by 15 % in each year 2024-2027. Introduction of a new excise duty on nicotine sachets and e-cigarette refills.
• Increase the excise duty on alcohol by 10% in 2024 and by 5 % in each year 2025-2027.
• Faster return of the diesel excise tax back to its pre-Russian invasion of Ukraine levels before 1 January 2024.
• Abolition of the excise duty exemption on aviation fuels (aviation gasoline, kerosene) for domestic flights.
• Restrictions on refunds of green diesel (according to standards).
• Abolition of the refund of excise duty on mineral oils consumed in mineralogical and metallurgical processes.

Energy taxes

• Elimination of the exemption of metallurgical and mineralogical processes from the tax on natural gas and certain other gases, the tax on solid fuels and the tax on electricity.

Gambling tax

• Increase in the second rate of gambling tax from 23 % to 30 %.

Real estate tax

• Increase of the real estate tax rates up to double, fully for the benefit of the State budget, and introduction of automatic indexation of the tax liability to inflation.

Pension reform

• Gradual extension of the retirement age and adjustments to the parameters for calculating new pensions.
• Tighten the conditions for early retirement.
• Voluntary sharing of pension entitlements between spouses.
• Increase in the guaranteed pension amount.

Other

• Restriction of (mainly non-investment) national subsidies.
• Restriction on the accumulation (i.e. cumulative ceiling) of work performance agreements.
• Reduction of state support for building savings for existing and new contracts.
• Reduction of the co-financing rate from EU funds by increasing the co-financing rate of final beneficiaries.
• Increase in the price of a vignette from CZK 1 500 to CZK 2 300/year.
• Increase in fees for mineral extraction.

We will continue to monitor the development of amendments to the relevant legislation for you.

If you have any questions, please contact the authors of this article or the EY advisory team you are working with.

Authors:

Adam Linek

Hana Cicvárková

Jevgenija Bajzíková