Draft amendment to tax laws to increase public budget revenues
The Ministry of Finance disclosed a draft amendment to tax laws for 2020, aimed at increasing revenues for public budgets. Changes will primarily affect insurance companies that will have to additionally tax, on a one-off basis, the difference between recorded technical provisions and provisions under the Solvency II rules. According to the draft, taxes on gambling, spirits, cigarettes and tobacco will also increase.
In early April, a draft act to amend certain tax laws in connection with a plan to increase revenues for public budgets was submitted for inter-ministerial comment procedure. The related explanatory report expects that the amendment may add more than ten billion of Czech crowns to public budgets in 2020.
The proposed amendment to the Act on Reserves will substantially affect the insurance sector. According to the draft, only technical provision amounts determined pursuant to the EU Solvency II directive would be tax deductible. At present, insurance companies must calculate their technical provisions in compliance with the EU directive for the purpose of reporting to the Czech National Bank, and only technical provisions in the amounts reported in the accounting books tax are deductible. It must be pointed out that in terms of their value, provisions under Solvency II tend to be significantly lower than technical provisions under accounting regulations. According to the amendment, the difference between technical provisions calculated under accounting regulations and technical provisions under the EU directive will have to be additionally taxed on a one-off basis. In its estimate, the Ministry of Finance believes that this amendment should result in an additional CZK 3.8 billion for the state budget.
The draft amendment to the tax laws also intends to substantially increase excise duties on spirits, cigarettes and tobacco: a 10 percent increase on cigarettes and tobacco and approx. a 13 percent increase on spirits. Similarly, the amendment plans to increase the tax on gambling, especially on lighter forms of gaming such as lotteries and bingos (an increase of 7 percentage points). In addition, gas used in residential homes boiler rooms / heating systems should no longer be exempt from tax on natural gas.
However, the above amendment is not the only legislative step to increase revenues for public budgets, as the Ministry of Finance is planning to submit a digital tax proposal by the end of May. According to the ministry’s estimate, this should generate additional annual revenues of CZK 5 billion. The Act on Tax on Selected Internet Services should introduce a new 7 percent tax on placing targeted advertising on digital interfaces by corporations with a global turnover exceeding EUR 750 million. The ministry also intends to tax the use of multilateral digital interfaces and the sale of collected user data. The amendment is planned to become effective from mid-2020.