Czech President Blocks New Tax Law

by Ulrika Lomas, Tax-News.com, Brussels

14 April 2004

Czech President Vaclav Klaus has vetoed proposed changes to tax laws amending VAT (value added tax) rates, fearing that the new proposals will have a negative impact on business in the country.

The new law is aimed at raising additional revenue for the government whilst bringing the VAT rules into line with EU laws ahead of the country’s accession to the single market in May.

The measures would cut the top rate of VAT from 22% to 19%, whilst transferring certain classes of goods and services from the preferential 5% rate to the top rate. The move was expected to raise an additional $187 million in revenue for the government.

However, whilst the President has acknowledged that the new laws are a necessary pre-requisite for EU accession, he argued in a statement that the proposals were an “unsound mix” and could have a "deep negative effect on Czech businesses and citizens".

The President’s actions last Friday have opened up the possibility of a damaging rift in the Czech government, and leave Prime Minister Vladimir Spidla with the tough task of finding the necessary parliamentary support to overrule the veto.

"Signing the VAT law now would give greater legal certainty to everybody and ease the adaptation of Czech entrepreneurs during EU entry, after May 1," Spidla responded in a statement, arguing that:

"Extending the uncertainty about the exact shape of the law benefits no one."

Recommended