Czechia's government has recently announced a large-scale fiscal reform package aimed at addressing the country's significant public deficit. This reform package, consisting of over 50 measures, is expected to impact both expats and locals in various ways. While the government plans to implement these changes in January 2024, parliamentary approval is required. Among the significant changes, the reform introduces alterations to the value-added tax (VAT) rates and several tax modifications, affecting the prices of goods and services.
Czechia's government presented a fiscal reform plan
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DEMO - Czech Republic
Author: Kristina Dosen
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Fiscal subject related
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Content accuracy validation date:
18.05.2023
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One of the most notable aspects of the fiscal reform is the adjustment of VAT rates. Currently, the Czech VAT system comprises three rates, but it will be consolidated into two under the new plan. The higher VAT rate, currently at 21 percent, will remain unchanged. However, the reduced rate will be lowered to 12 percent. Consequently, the existing 10- and 15-percent VAT brackets will be abolished.
The revised VAT rates will have varying impacts on different products and the average consumer. Beer drinkers and pubs can expect an increase in prices, as the VAT on draft beer will rise from 10 percent to 21 percent. Soft drinks will also fall under the highest VAT rate.
Certain services and products, such as newspapers, hairdressing services, shoe repairs, and bicycles, will become more expensive as they transition from the lowest VAT bracket to the highest. On the other hand, food products and housing, which have experienced significant price increases in the past year, will benefit from the lower VAT rate, as it decreases from 15 percent to 12 percent.
Additionally, public transport, magazines, certain medicinal drugs, and tickets for cultural and sports events will become slightly more expensive, as their VAT rate increases from 10 percent to the new 12-percent bracket. Books, however, will remain exempt from VAT.
The fiscal reform will also bring changes to the tax landscape in Czechia. With the elimination of 22 tax exemptions and the introduction of other tax adjustments, many individuals will experience an increase in their tax burden, either directly or indirectly.
Starting in 2025, corporate income tax will rise from 19 percent to 21 percent. Property taxes will also see a substantial increase across all levels. For example, an average 70-square-meter apartment in Prague 1, which currently incurs an annual payment of CZK 1,700, is projected to increase to approximately CZK 2,500 following the reform.
Excise duties on cigarettes, tobacco, cigars, and gambling activities will face a 10 percent increase next year, followed by additional 5 percent increments in each of the following three years. Heated tobacco will see a 15 percent annual increase for four years, and a new excise duty will be introduced for nicotine pouches and e-cigarette refills, leading to increased costs for these items.
Furthermore, alcohol will also be subject to higher excise taxes. The tax on alcohol will rise by 10 percent in 2024 and by an additional 5 percent between 2025 and 2027, with the exception of still wine, which remains exempt from tax.
The government's decision to remove 22 tax exemptions will impact various areas, including the elimination of the student tax credit, tax discounts for preschool education expenses, and tax relief on non-monetary employee benefits. Tax discounts for non-working spouses will also end, except for those with children under the age of three.
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