Czech windfall tax approved for 2023

Czech windfall tax approved for 2023
Billionaire Daniel Kretinsky's EPH announced that its trading branch EP Commodities will leave the country in response to the approval of the windfall tax. / bne IntelliNews
By Albin Sybera in Prague November 7, 2022

The Czech parliament approved the windfall tax proposal on Friday after junior coalition partners of the ODS of Prime Minister Petr Fiala backed down from their amendments.

The approved version thus reflects Finance Minister Stanjura's proposal of a 60% levy on the  profits of selected companies in the years 2023-2025 exceeding 120% of their 2018-2021 average. The measure still needs  to be passed by the Senate and then signed into law by the president.  

The tax aims to collect extraordinary profit from large energy, banking or refinery companies which these have been making on the energy crisis and the rise in interest rates. Stanjura (ODS) is counting on CZK85bn (€3.5bn) to be collected from the tax next year, around 1.2% of gross domestic product. The money is meant to be used to pay for the government measures to help citizens and businesses wrestling with the cost of living crisis.

The Czech budget is already strained after a series of measures to help mitigate the energy crisis were passed and after the ODS, when in opposition, together with the then ruling ANO party pushed ahead with tax cuts late in 2020.

ODS is largely a neoliberal party that advocates the lowering of taxes and trimming down of welfare state, and the idea of introducing a windfall tax  sparked criticism inside the party. The windfall tax is seen as preferable to tax rises as it is temporary. Even with the windfall tax, the budget deficit next year is forecast at 4% of GDP.

The tax has also been critised by the Czech Banking Association, the three energy companies which dominate the Czech energy market – privately held EPH and Sev.En and majority-state-owned CEZ – as well as by ANO of billionaire ex-premier Andrej Babis and the far-right SPD.  

EPH, the largest energy conglomerate based in the country by turnover, whose majority shareholders are billionaires Daniel Kretinsky and his Slovak business partner  Patrik Tkac of Slovak financial group J&T, announced that its trading branch EP Commodities will leave the country in response to the approval of the windfall tax.

Both EPH and CEZ announced substantial or record profits in their preliminary results earlier this year, and large banks have announced annual increases in profits ranging from 40-90% for the first three quarters in 2022. 

Head of the legislative department at the Czech Chamber of Commerce Ladislav Mincic said it was to be expected that the taxpayers will be trying to avoid paying the tax “by optimising their tax bases”. 

“[Taxpayers] will let’s say manipulate or operate on the border of the law to somehow transfer profits, to use their expenses to the maximum, or to diversify profits in cooperation with other subjects”, Mincic was quoted as saying by Czech Radio.

When the windfall tax proposal was first debated in the parliament,  junior coalition member the Pirate Party tried to amend it by having the windfall tax apply to 2022,  arguing that the idea is to tax profits made this year and that similar provision is seen in a number of other countries across the EU. 

Already before the tax proposal, Christian Democratic leader and Minister of Labour Marian Jurecka told the media that his party wants the tax to be applicable to 2022. However, Fiala and his ODS insisted on  2023 and the Pirates eventually backed down from their legislative amendment. 

Another junior coalition party wanted even milder legislation, with TOP 09 suggesting the levy is scaled down to 40%.

The Pirates also criticised the legislation’s applicability to only the largest banks, with medium-sized banks such as J&T Banka, Fio Banka or Air Banka of PPF Group left out.