Financial administration’s report for 2017: revenues have grown, mostly from VAT

More efficient tax collection remains the financial administration’s priority, as well as higher tax revenues. These are traditionally topped up by VAT revenues, followed by personal income tax, with corporate income tax coming in third.

The highest year-on-year growth – by roughly 9.1% – is attributable to VAT, primarily thanks to the electronic reporting of sales (ERS), as entrepreneurs in catering and accommodation joined the system in the first stage (from December 2016), and wholesalers and retailers in the second stage (from March 2017). Contrariwise, the reduction of VAT rates from 21% to 15% for catering services had a negative effect on the growth of VAT revenues. According to the financial administration, revenues from personal and corporate income tax grew noticeably as well; the main reasons for this are the favourable development of the Czech economy, growth in wages, and a declining unemployment rate. 

In 2017, the financial administration was busy with inspection activities. Procedures to remove doubts were used in 14 651 cases, nearly 50% of which ended up with different amounts of tax being assessed than had been declared by the taxpayers. Although the number of procedures to remove doubts may seem high, it is still less by 23.7% than in the past year. The total number of tax inspections also dropped year-on-year, by 25.7 %. This was mostly due to taxpayers correcting their errors through informal procedures, without the tax administrator having to initiate a formal procedure to remove doubts or a tax inspection. VAT came first in this respect, too: of the total amount of additionally assessed tax, VAT accounted for the highest share with 89.6%. The number of transfer pricing inspections was also considerable, with taxpayers responding by more frequently applying for binding rulings (APAs).

2017 was also rich in terms of appeals lodged: the financial administration was a party to a total of 13 478 appellate proceedings, with only 1 624 ending favourably for the taxpayer, which is by 20.7% less than in the previous year. Taxpayers were mostly unhappy about tax administrators’ decisions in the VAT area.

Compared year-on-year, a drop by 9% in the number of orders to secure tax becomes visible for 2017; the amount of the funds thus secured was also lower by 52.1%. Contrariwise, the tax administrators grow fonder of using pledges to secure unpaid tax – the number of decisions to this effect grew by 56.9% year-on-year.

For the future, the financial administration will yet again aim to make taxpayers’ lives easier by digitalising tax administration, improving the quality of outputs addressed to taxpayers and the public, and generally enhancing its client-oriented approach. Despite these ambitions, we can hardly expect tax administrators to ease off their inspection activities or efforts to recover unpaid tax.