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The dramatic increase in the price of electricity and gas in the Czech Republic burdens practically everyone. In recent weeks, millions of households and thousands of entrepreneurs have been watching with horror what is happening in the domestic energy market, where supplier price lists have become more expensive by tens of percent.
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Precisely because of record prices, the government wants an amendment to the law, which will allow the value added tax rate to be reduced to zero from the beginning of next year. The VAT remission also applies to November and December 2021.
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However, the customer will not just feel the real VAT savings. It will not appear until next year in the annual settlement. The amount of the deposit, which is paid at monthly or quarterly intervals, will not be automatically reduced by VAT and will not be reflected until the following year.
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“The VAT waiver should manifest itself to customers at the time of regular invoicing, which takes place once a year for households,” confirmed Miroslav Vránek, spokesman for Pražská plynárenská.
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And how far will the savings reach? A simple calculation is enough.
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“For example, electricity prices have risen by 50 to 70 percent, and when the regulated portion of energy is added, this growth will fall to about 30 percent. The final price will be reduced by another twenty percent by VAT. However, the result after deduction will still be about ten percent higher, “Petr Holubec, a spokesman for Prague Energy, calculated for SZ Byznys.
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In the final, the unregulated price of individual suppliers from whom clients draw energy will decide on the final increase in the annual billing.
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Distributors under pressure
Unlike customers, the decision of the Ministry of Finance does not give much advice to individual distributors, who are currently under increasing pressure due to rising prices. They learned the news about the VAT waiver only six working days before it took effect.
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Distributors agree that the biggest problem is setting up IT systems and testing them in such a short time, which is time consuming.
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“At the same time, the solution to this decision takes away the personnel capacity that we would need to devote to customers who have entered the regime of a supplier of last resort,” added Vránek from Pražská plynárenská.
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According to him, due to lack of readiness, it is necessary to expect problems.
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“VAT waiver is an unconceptual solution for which the invoicing systems of energy companies are not prepared. Without a detailed methodology of the Ministry of Finance of the Czech Republic, these extensive technical changes cannot be implemented by 1 November 2021 and it can be expected that energy companies may have a problem invoicing from 1 November, which may have an impact on their cash flow in this difficult period, “added Vránek.
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Bad idea, experts agree
Tax experts also agree that the VAT waiver of electricity and gas by the Ministry of Finance is an unsystematic step. “This is just another proof that taxes should not be used as a ‘fire extinguisher’, because it will do more harm than good,” said Blanka Poštová, KODAP’s tax advisor.
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From the point of view of state budget revenues and the VAT system, this is an unacceptable idea for responsibly economists.
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According to her colleague Vlastimil Sojka, ill-considered interventions in the tax system are even the worst idea to solve crises of a similar nature. They are not aimed at those who are most affected by the situation, and they also bring chaos to the tax system.
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In addition, according to him, this saving will also land in the domestic budgets of families, which so far enjoy fixed prices and no drama is taking place in them. The already heavily tested state budget will then receive a greater impact on the setback.
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“From the point of view of state budget revenues and the VAT system, this is an unacceptable idea for responsibly economists,” Sojka added in his statement. The exemption from value added tax on energy should prepare public finances by CZK 2.08 billion per month. In the case of the state budget alone, it is 1.3 billion crowns.
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At the end of September this year, public finances received a total of 323.6 billion crowns in VAT, of which 208.7 billion crowns went to the budget.
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What now? We don’t know
But what the final form and details of this general pardon will look like is not yet known. This is one of the reasons why theories began to appear on social networks that could help individual clients save.
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One of the ones that tax expert Tomáš Hajdušek came up with on his Twitter account was that the solution for many clients for next year, if the VAT waiver is not carried over to the new year, could be to pay a deposit for the whole year during November this year. or December, ie at the time of the valid VAT pardon.
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If someone pays electricity in advance for the whole of 2022 in November and December, will they have electricity exempt from VAT in 2022, even if the law is not approved?
I’m asking for a friend.– Tomas Hajdusek (@TomHajda) October 21, 2021
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However, the Ministry of Finance rejected this option after being asked by SZ Business.
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“It is true that the purpose-raising of advances in November and December only to optimize and reduce the overall tax liability contrary to the purpose of regulation could be assessed by the Financial Administration in the context of the principle of non-abuse,” commented Michal Žurovec, spokesman.
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This so-called tax exemption circumvents the basic principles by which VAT is uniformly governed throughout the EU. If we really want to exempt energy supply from VAT, then a change in European legislation is needed.
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Disagreements with the EU
As well as a clear methodology today, it has not been decided whether the VAT waiver for electricity and gas will really apply next year. The decision runs into European legislation.
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“This so-called tax exemption circumvents the basic principles by which VAT is uniformly governed throughout the EU. If we really want to exempt the supply of energy from VAT, then a change in European legislation is necessary, “says tax expert Tomáš Hajdušek and adds that the current legislation does not allow this requirement.
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Value added tax is governed throughout the EU by a single directive, which is binding on all Member States. Government material on the reduction of value added tax on the supply of electricity and gas states that permanent or short-term tax reduction can be achieved in three ways.
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For example, the government would have to consult with the European VAT Committee or ask the EU Commissioner for the Economy. This is exactly what the current Minister of Finance Alena Schillerová (for YES) is to ask to allow the Czech Republic a permanent reduction in the energy tax.
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According to Vlastimil Sojka, the big problem of sorry for energy taxes is precisely the conflict with harmonized VAT rules in the European Union. “It will therefore very likely be necessary to pay a contribution of 0.3% to the Union budget, calculated in accordance with Council Regulation 1553/89, also from this uncollected tax,” the tax expert pointed out.
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“The state should solve the social problems caused by rising energy prices by standard means, ie support aimed at the most needy. The world is entering a difficult economic period and no state can reasonably be expected to have enough resources to remedy the decline in living standards of all its citizens, “he added.
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According to Hajdušek, moreover, the provision in the Tax Code allows the Minister of Finance to temporarily waive VAT on a flat-rate basis, but only in the event of an extraordinary event, especially a natural disaster or due to an irregularity in the law.
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“Energy prices are set on the basis of market principles, so it is definitely not an extraordinary event. I believe that in this case the competence that the law entrusts to the Minister of Finance has been exceeded, “says Hajdušek.
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