An expert advises on changes in 2010 and other likely reforms in the coming years
Posted: November 24, 2010
It may not quite be tax season, but the end of the year is approaching, and it's never too early to start getting those receipts and invoices in order. There have been a few changes to tax policy in 2010, and more are on the way for 2011.
Prime Minister Petr Nečas' government is grappling with a budget deficit, all the while trying to prime the economy for growth, factors that inevitably affect tax policy. To help sort out fact from fiction and to get some tips on how both businesses and individuals can cope with what's ahead, we sat down with Romana Udržalová, managing director at Česká účetní kancelář a.s. (Czech Tax Company) to talk taxes.
The Prague Post: Were there any tax changes this year we should know about?
Romana Udržalová: In business licenses, tax tariffs are down from 60 percent to 40 percent compared with 2009. This, however, applies only to so-called "other businesses," including tax advisers, auditors and artists. Within companies, there was a change in income tax from 19 percent to 20 percent. Other than that, both groups must submit their tax returns by March 31, 2011. Individuals with business licenses must not forget to send records of their deposits for health and social insurances to the relevant offices.
TPP: The current government is promoting austerity and trying to combat a budget deficit. What changes lay ahead?
RU: There is one big change: the so-called "Tax Regulation," which goes into effect Jan. 1, 2011. The current opposition parties, and even the former right-wing government, previously discussed this change. Tax Regulation is actually a new version of the Act on Tax and Fee Conduct, which covers everything from tax-return deadlines, timelines and payment calendars to penalties, suspensions, etc.
TPP: What was the reason for these changes?
RU: The Act on Tax and Fee Conduct was valid for 18 years. Economic growth is a dynamic and changing environment, and it is important to be up to date with the business climate of the country. Some tax advisers do not feel comfortable with the changes, as the system was in place for 18 years and will now change again. Change is not always welcomed. The transition might create difficulties, because the Tax Regulation will be new to everyone and might require more changes, addendums, etc. More so, it will require new software that will be available only from April 2011. So when problems occur, tax advisers and state clerks might have trouble giving the right answer. For a period of three months, we can expect slight chaos, long waits for responses from tax offices to taxpayers and an overall uneasiness in the field.
TPP: Why should somebody hire a tax advisory firm instead of doing their own taxes?
RU: Accounting firms and tax advisers will be the first ones with the most knowledge about the complications and changes. It is the Chamber of Tax Advisers that suggested and designed the Tax Regulation.
However, it is important to check the portfolio of a given accounting firm. There are firms that can file your taxes for 1,000 Kč, but in this price range, there is no guarantee it will be done correctly. Reliable service can range up to 3,000 Kč, including processed taxes together with deposit overviews for health and social insurance offices. Giving a power of attorney to an accountant frees the tax payer from having to sign a single document.
TPP: Are there are any other likely reforms by the Nečas government that might be tax-related?
RU: The first one that comes to mind is pension reform. It will be something similar to what already exists in Slovakia: the form of pension pillars. It has already been declared a priority by the government, but not yet fully dealt with. In Slovakia, for instance, the first pillar is mandatory in the form of social insurance taken from your wages, and the second is voluntary based on each person's choice. Nečas will now pursue these two pillars, so people in the Czech Republic do not have to rely solely on the state when they retire. In terms of companies, we can expect a change in direct taxes. In 2012, the lower tax rate will increase from 10 percent to 12 percent.
TPP: The government seems to be focused on budget cuts rather than tax hikes. Are there any other places where taxes are expected to rise?
RU: Inheritance tax in particular will feel increases. At this moment, it has three legal levels, and they are progressive in application. The first level is children and spouses. The second is siblings, cousins, brothers-in-law and sisters-in-law. These two levels have been excluded from inheritance tax since 2008. The third level contains the rest of the inheritance tax and currently applies as follows: The lowest rate is 7 percent for given property up to 1 million Kč, and the highest is 40 percent for property up to 50 million Kč. I am convinced the inheritance tax rate will be increased in the third level, and I would say the second level will experience changes also. In other words, there will be a decrease in financial limits and an increase in percentages.
TPP: Is this a direct reaction to the current crisis?
RU: Absolutely. The state has to somehow deal with the crisis and the major debt in the state budget. There are still ways to increase state income. The inheritance tax rate in the Czech Republic is low in comparison with other European countries. In the Netherlands, for instance, the maximum amount reaches 63 percent, in Austria 60 percent.
TPP: Tax policy in the Czech Republic sounds rather complicated. How does it measure up internationally in terms of simplicity?
RU: The accounting firm PricewaterhouseCoopers regularly publishes charts of countries that have the simplest taxing procedures. In their "Paying Taxes 2010" report evaluating 184 economies, the Czech Republic finished 121st. The highest ranked place [with the simplest process] was the Maldives.
They base their rankings on the amount of taxes companies and individuals have to pay. The Czech Republic is similar to other European countries in that it has an enormous number of taxes. The simplest systems are in off-shore economies, which aim to work with one kind of tax, meaning incorporating the already small amount of taxes into a single one. The other measurement is the time one has to spend filing taxes.
TPP: Is the difficulty of the tax process an indication of a country's economic maturity and wealth?
RU: Yes. The tax system and its rates are aligned with the state budget, its deficit and its earnings. So 121st place is not so good, but the report also mentions that the Czech Republic takes 37th place in timely taxpaying. Midsize companies not only carry the economy, but are also disciplined in fulfilling their duties with timely payments and minimal tax fraud. That is a good feature to have in world rankings.
Nella Manson can be reached at
Tags: taxes, tax rates, business, economy, czech republic, czech, romana udrzalova, ceska ucetni kancelar, czech tax company, tax policy.
- It a matter of integrity, that you take documents to the appropriate department to ...
- ''The state has to somehow deal with the crisis and the major debt in the state ...
- Canonical partial order...Isomorphic...Cartesian product....? ...