21st September 2014

Economic Policy: Introduction of third VAT rate and expected reduction down to two tax rates again in 2016

On Wednesday 17th September the Chamber of Deputies decided in second reading about introduction of third VAT rate at the level of 10 %. Eventually they sent act to the third reading where it should be accepted and sent to the Senate. As it was previously mentioned the third tax rate should be applied on medicine, baby food and books. Lowering of the rate for baby food is part of coalition pack aimed at improving standard of living of families with children. As for the books only those books that have less than 50 % of their content devoted to commercial advertising would be in the newly introduced VAT rate. Some opposition deputies warned that the introduction of third VAT rate would mean additional costs in hundreds of thousands Czech crowns. Among one of the proposed amendments to the matter at hand was also extension of 10% VAT rate also to veterinary drugs.

As Minister of Finance Andrej Babiš said and as his Deputy Minister Simona Hornochová later this week confirmed the number of VAT rates would decrease to the number of two in the horizon of two years ie. during the year 2016. Minister Andrej Babiš said that this would be possible when the financial and customs service would be consolidated and the tax collection would be improved. The target VAT rates would then be 20 % for the basic VAT rate and 10 % for the lowered VAT rate. Furthemore, Minister Andrej Babiš added that the Czech economy was not ready for single VAT rate. Among economists the lowered VAT rate is accepted with doubts as they claim that the reduction of VAT would mean the reduction in real prices.

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Members of the American Chamber of Commerce in the Czech Republic