Proposed tax measures

On 19 March 2014, the First Deputy Prime Minister, Andrej Babiš, introduced draft tax measures that he would like to discuss with the coalition partners. The proposed measures are divided in four areas: legislative changes effective from 2015, Act no. 458/2011 Coll. (the act on changes to acts relating to the establishment of a single collection point and other amendments to the tax and insurance acts), measures against tax evasion, and international cooperation.

1. Legislative changes effective from 2015

The aim of the changes is to clear up the ambiguities following from the 2014 amendments, namely those relating to real estate, trust funds ("svěřenský fond"), integration of the inheritance and gift taxes into income tax, and the application of VAT for the supply of real estate. It has been suggested to engage the professional public in the process via informal working groups; associations and chambers were addressed.

The request has been made to implement the coalition obligations regarding improvement of the system. The obligations are:

• Introducing tax benefits for the second child and additional children;

• Reintroducing the option for senior citizens to have basic taxpayer deductions;

• Reducing lump-sum expenses;

• No single VAT rate; and

• Eliminating the duty for individuals to file tax returns due to the 7% solidary tax.

Harmonisation with EU legislation should be ensured by increasing the minimum rates for excise taxes so that these meet the EU requirements. It should be done in such a way that the rates would not have to be changed soon. Concurrently, it is necessary to introduce regulations for stockpiling in order to avoid paying higher taxes.

2. Single collection point and other changes to tax acts

Implementation of the single collection point and the flat tax exemption for dividends should be cancelled. The regulations that enable the simplification of tax administration, harmonisation of the tax bases and insurance, and improvements in collecting taxes in the future should be kept or modified if needed. The mentioned regulations relate to taxation of investment funds, terminating unsystematic exemptions, or more frequent use of electronic submissions.

Further simplification of tax administration is planned for 2016 because a detailed analysis and discussions with specialists are needed prior to the action. The discussions will be about how to harmonise the tax bases and replace super-gross salaries and the solidary tax increase with a second tax rate.

3. Measures against tax evasion

The following have been proposed:

• Extensive use of the reverse-charge mechanism and introducing the mechanism of quick reaction;

• Implementation of electronic recordkeeping for VAT;

• Expanding the concept of unreliable payers;

• Creating a central registry of bank accounts;

• On-line registration of sales and a receipt lottery; and

• Higher taxation of gambling, providers of gambling based abroad, and internet lotteries.

The reverse-charge mechanism should be extended to other commodities, e.g. supply of mobile phones, tablets, laptops, games consoles, supply of devices with integrated circuits, supply of raw or half-processed metals, including precious metals.
Implementation of electronic recordkeeping and a receipt lottery should significantly help to reduce value added tax evasion, which is the most common form of tax evasion. The most important contribution of electronic recordkeeping should be the system of crosschecking invoices. The receipt lottery should motivate people to require receipts when paying for goods or services.

There are other requests for improving the efficiency of tax administration and other requests related to the customs administration. Customs administration should reduce tax evasion by tightening the rules for granting (and having the possibility to change) permits needed for excise tax, through increasing the authority of customs administration during criminal proceedings and through creating a system enabling the tracking of fuel.

4. International cooperation

The proposals related to international cooperation include automatic exchange of information as a global standard, concluding international treaties with former tax havens, implementing the FATCA treaty thorough monitoring of payments directed to the former tax havens, stronger cooperation with tax administration in neighbouring states, and inspiration from tax measures used abroad.

Additional information on the topic can be found here (in Czech only).