At a press conference on 11 May 2023, the Czech government presented an extensive proposal for a public finance recovery package aimed at halting the country’s growing debt and simplifying the existing tax system.  

Corporate income tax  

• an increase of the tax rate from the current 19% to 21%  
• limiting the tax deductibility of the cost of acquiring passenger cars for business purposes to CZK 2 million  
• abolition of tax deductibility of silent wine as a gift up to CZK 500 for representation 

 Personal income tax 

• tax rate of 15% only up to 36 times the average wage (currently approx. CZK 121 thousand per month), after that the rate is 23% 
• exemption of income from the sale of a security or share will now be limited to a maximum of CZK 40 million, even if the time test between acquisition and sale is met (exemption up to a maximum of CZK 100,000 per year will remain) 
• abolition of a total of twenty-two tax exemptions including, for example:  
  • deduction for spouse only if caring for a child under 3 years of age 
  • abolition of “školkovné” (discount for placement a preschool child in a children’s institution) 
  • abolition of the student tax credit 
  • abolition of the tax exemption for non-cash employee benefits (e.g. travel allowance, sports and cultural events, etc.) 
  • abolition of the tax exemption for over-the-limit meal vouchers 
  • reduction of the limit for exemption of income from raffles and gambling from CZK 1 million to CZK 50 thousand 
  • abolition of the deduction for union dues 
  • abolition of the deduction for payments for examinations verifying the results of further education 

 Value added tax  

• maintaining only two tax rates – 21% and 12%  
• reduction from 15% to 12%, e.g. on food excluding drinks, medicines or construction work, child car seats or funeral services 
• reduction from 21 % to 12 %: occasional public passenger transport by bus    
• zero tax rate: books 
• transfer back from 15% to 21%: hairdresser and barber services, draught beer, collection, transport and landfill of municipal waste, repair of footwear, leather goods and bicycles, cleaning work, firewood, newspapers 

 Excise duties 

• faster return of excise duty on diesel fuel back to the original level before the Russian invasion of Ukraine before 1 January 2024 (namely from the first day of the month after the amendment comes into force, the increase will be CZK 1.50 /l) 
• introduction of a new excise duty on nicotine sachets and e-cigarette refills, tax rate increases on cigarettes, tobacco, cigars etc (+ 5-10% per year) and heated tobacco (+15% per year) 
• increase in the tax on alcohol (+10% in 2024 and +5% each year until 2027) 
• abolition of the tax exemption for aviation fuel 
• refunds for so-called green diesel according to standards 

 Tax on gambling 

• increase in the second rate of tax on gambling from 23% to 30% (live games, betting, raffles, etc.) 

 Real estate tax  

• increase in the real estate tax rates up to twice the current rates 
• from the year 2025 to be valorised according to inflation  

 Social security contributions  

• an increase in the minimum assessment base for self-employed persons from 25% to 40% of the average wage, gradually by 5% per year between 2024 and 2026 
• increase in the assessment base for self-employed persons from the current 50% to 55% of the tax base 
• agreements to complete a job – newly introduced limit, above which income will be subject to insurance contributions – maximum 25% of average wages for one employer or 40% for multiple employers 
• introduction of a sickness insurance rate of 0.6% paid by employees 

 Other changes 

• reduction of national subsidy titles across most ministries for the years 2024 and 2025 in the amount of CZK 54.4 billion 
• 2% reduction in funding for civil service salaries 
• reduction of the Cultural and Social Needs Fund (CSF) by one half from 2% to 1% 
• cancellation of 77 territorial tax offices (but according to the Director of the General Financial Directorate, no lay-off will be made in this context) 
• tightening of the conditions for entitlement to unemployment benefit in case of repeated unemployment registration 
• reduction of state support for home savings accounts to a maximum of CZK 1,000/year for new and existing contracts 
• increase of vignette price by CZK 800 from CZK 1,500 to CZK 2,300/year 

The proposed changes represent one of the most comprehensive tax reforms in recent years in terms of their scope and impact on all major taxes. The draft recovery package is the result of a complex political compromise and one could certainly imagine more appropriate, and above all not so broadly applied, changes to the tax system. However, these are only suggestions. In particular, an increase in the income tax rate may result in a reduction in competitive ability, not only in labour-intensive sectors, and we will be watching to see if, for example, tax measures to encourage investment are introduced.

The recovery package as a whole will now be subject to an external comment procedure followed by the standard legislative process. As this is a government bill, the package can be expected to be approved by the end of this year and will probably take effect as a whole on 1 January 2024.  

We will continue to keep you informed of further developments in the discussion and approval process.

Author: Jiří Jakoubek, Zuzana Kalincová