Tax changes in the Czech Republic will radically affect almost all employees in the country - FCHAIN

Significant changes to the tax system are expected in the Czech Republic in the near future. Finance Minister Alena Shillerova made a proposal to cancel gross salaries and introduce a 15% income tax rate for residents.

Consequently, workers will have more money on hand, says  Alena Shillerova. At the same time, however, it must be admitted that billions of crowns will be missing from the state budget revenues. The ruling coalition supported this decision, but the opposition came out with criticism, claiming that the poor would improve their situation by only a few hundred crowns. But, the possible losses of the treasury from this decision will hardly be compensated.

Conversely, the Ministry of Finance considers such a change in tax legislation one of the most important reforms in the history of modern Czech Republic, which will improve the situation of millions of employees, whose average salary will increase by almost a third. Doctors, cooks, nurses, teachers, workers, policemen, transport workers and similar categories of workers will have to feel positively such a reform on their own wallet – they are confident in the Ministry of Finance. But no one has yet proposed how to get out of the situation with increasing the state budget in connection with this innovation. And according to preliminary estimates of various financial organizations, the budget may lose from 70 to 75 billion crowns per year. And the compensation plan for this amount was not publicly announced. Perhaps, and our experts believe so, the government expects to pay off the budget deficit through external borrowing, especially considering that the Czech Republic currently has one of the lowest public debts in the European Union.

The National Budget Council, in its turn, does not support the decision to abolish excess gross wages in the current economic situation in the country and in the world. In their opinion, the support of residents through direct government spending is more acceptable and effective for encouraging consumer demand. In addition, in today’s unfavorable economic situation one should not discard the likelihood that family farms will save and not put into circulation a part of the new income, thereby undermining the planned additional receipts to the treasury from excise taxes and VAT, which the government is seriously counting on.

The specialists of our Czech branch are closely monitoring the situation with changes in tax legislation and are ready to work in new conditions and with any types of enterprises in the republic. We also understand and assess the risks that such an innovation can bring. Indeed, on the one hand, the abolition of excess wages can become an effective tool due to which employees will be able to receive increased net wages. But, if we take into account the other side of the issue and envisage future social policy and possible problems with people’s old-age insurance, then in a situation with large tax deficits this can lead to negative consequences and instability in society. In addition, the replacement of the excess gross salary can negatively affect and complicate the budgeting process for the next year, i.e. 2021.

Entrepreneurs operating on the Czech market can contact our specialists for more detailed information about the upcoming tax legislation and how to consider it in planning and in their future accounting documents,.