According to an international comparison by the consulting firm Forvis Mazars, the Czech Republic’s reduced VAT rate, which primarily applies to food and medicine, is among the highest in Central and Eastern Europe. This imposes a higher tax burden on essential goods compared to neighboring countries.

The impact of this higher VAT rate is particularly evident in the food sector. While last year medicines and food were subject to a 15% rate, neighboring countries maintain lower VAT rates on food. Germany has long held a 7% rate, Slovakia and Austria have a 10% rate, and Poland applies rates of 5% and 8% for different food categories.

However, experts caution against drawing hasty conclusions based solely on VAT rates. Jakub Komárek, an economist at PAQ Research, suggests that a more appropriate metric would be the ratio of tax revenue from consumption taxes to economic performance. In this regard, the Czech Republic closely aligns with the EU average.

The recent VAT changes have had mixed effects on prices. While the increase in VAT on utilities and transportation has contributed to price rises in these sectors, the reduction in VAT on food, coupled with a decrease in agricultural commodity prices, has helped stabilize and even slightly reduce food prices.

As the Czech Republic navigates these tax changes, it’s clear that the impact on consumers and businesses will continue to be closely monitored. The government’s challenge is to balance revenue generation with the need to keep essential goods affordable for its citizens.

Source: CzechDaily

Prepared by the team of foreign offices CzechTrade Osaka and Tokyo