Czech government wants windfall tax from 2023

Published: 07.11.2022 Related countries:  Czech Republic Czech Republic

The surprise tax is meant to cover the extra expense for energies for households and businesses in the Czech Republic.

The Czech government favours applying a planned windfall tax on profits in the energy and banking sectors from 2023, Finance Minister Zbynek Stanjura said on the 19th of October.

Czech markets were jolted  on news the government could widen its proposed tax on excessive profits to include 2022 earnings, earlier than existing plans applying only to 2023-2025.

The potential widening application of the tax - being put in place to fund government measures aimed at easing the impact of Europe's energy crisis - rattled investors and sent shares of electricity producer CEZ (CEZP.PR) down more than 5% and banks more than 3% lower.

The drop came after Labour Minister Marian Jurecka told media before a government meeting on Wednesday that coalition leaders had agreed the tax could be applied in 2022.

The government had originally worried about applying the charge retrospectively, wary of legal challenges.

Stanjura told reporters after the government met that the cabinet still leaned towards putting the windfall tax in place for 2023, calming markets somewhat.

"We are leaning towards the option from the first of January, 2023," Stanjura said, adding he was watching how others in the European Union would apply windfall taxes.

"It may be conservative, but it is safer to have it effective from the first of January, 2023, even knowing that some states may do it differently."

A government source had earlier said legal implications for the tax were still being considered.

Jurecka's comments on the tax came after leaders of the ruling coalition's five parties met on Tuesday evening.

"In principle, I think it is possible to apply it to 2022," Jurecka, who heads junior party the Christian Democrats, said in broadcast comments on Czech TV on Wednesday.

Another official, Olga Richterova, a deputy parliamentary speaker for the Pirate party, had also said on Twitter late on Tuesday evening that the party had "succeeded" in pushing through expanding the windfall tax to include 2022 earnings.

Both officials said the final form was being negotiated.

The Finance Ministry has proposed a tax starting next year at 60% of profits exceeding 120% of the average of the past four years at large energy, banking, petrochemicals and fuel firms.

It wants to raise $3.4 billion in 2023 alone.

The windfall tax should be imposed on banks with more than 6 billion crowns ($240 million) of net interest income in 2021.

Like others in the European Union, the Czech government is seeking to shield households and businesses from high energy prices resulting from delivery disruptions and market volatility mainly caused by Russia's invasion of Ukraine. A windfall tax would help cover protective measures such as a cap on electricity prices.

Delivered by CzechTrade team Canada.
Source: Reuters.