In November 2024, the General Financial Directorate launched a new tool for streamlining tax administration, called Daňové echo (Nudge letters). This modern concept, inspired by behavioural approaches, aims to encourage voluntary tax compliance and make tax collection more efficient. The personalised system of sending notifications to individual taxpayers is designed to increase the clarity of information and simplify communication between taxpayers and the tax administration. The aim of the Nudge Letters is to increase the level of voluntary compliment with tax obligations and to reduce the costs associated with the control procedures that tax administrators are normally obliged to carry out under the Tax Code in the event of deficiencies.

What are the Nudge Letters?

A nudge letter is a personalised letter sent by the Tax Administration to individual taxpayers when it identifies discrepancies in their tax obligations based on available data. This tool is not a punitive measure, but provides opportunities for early remedies without sanctions. Taxpayers are notified of the errors and have the opportunity to correct them voluntarily.

What steps are required of taxpayers?

Responding to a notice sent is in principle voluntary, however, if the taxpayer does not take any action, this may lead to negative consequences. In the event of non-response, the tax administrator is entitled to proceed in a formalised manner in accordance with the relevant provisions of the Tax Code, i.e., for example, to send the taxpayer an invitation to submit an additional tax claim, which may subsequently result in the assessment of tax including related penalties. Taxpayers may be advised to react in a timely manner to the tax administrator’s notice or to contact a tax advisor in this matter.

Evaluation of the first stage

In February 2025, the General Financial Directorate published an evaluation of the first stage of the Nudge Letters project, which focused on taxpayers who cancelled their pension product early in 2022 and claimed tax relief. This pilot stage of the project showed positive results – 47% of taxpayers responded to the notice sent and voluntarily filed additional tax returns, thereby correcting their mistakes. As a result, CZK 2.1 million was transferred to the state budget, while the total expected fiscal effect of this stage is CZK 4.5 million.

The second stage of the Nudge Letters

The success of the first stage was followed by a second stage which focused on incorrectly claimed spouse’s allowance for 2022. The tax administration contacted 3,502 taxpayers. Personal letters were mailed to taxpayers on 14 February 2025. This stage is expected to bring up to CZK 80 million to the state budget, and the evaluation of this stage will be carried out in July 2025.

Outlook for the future

Overall, it is planned that the Nudge Letters will continue to be extended to other areas of taxation, thereby streamlining tax administration and reducing the administrative burden on taxpayers and authorities. The General Financial Directorate intends for this tool to become the standard for communication with all taxpayers and contribute to an efficient and transparent tax system.

Conclusion

Nudge letters are a new tool for tax administration in the Czech Republic aimed at making the tax system more efficient and motivating taxpayers to voluntarily comply with their tax obligations. The response to the notices sent is voluntary on the part of the taxpayers, whereby the taxpayers are given the opportunity to correct the identified deficiencies without penalty consequences. In the event of non-response, the tax administrator will proceed in the standard ways according to the Tax Code, which may have negative consequences for taxpayers. It is therefore to be recommended that taxpayers respond to any alerts within the Nudge Letters, possibly with the help of a tax advisor.