The Czech government approved a draft amendment aimed at rising the lower rate of the value added tax (VAT) from 10% to 14% as of 2012 and unifying VAT rates at 17.5 % as of 2013. Finance Minister Miroslav Kalousek announced that at a press conference after the cabinet meeting. The bill is yet to be discussed by Parliament.
The VAT hike may lead to an increase in prices of food, drugs, housing, municipal public transport, accommodation, health and social care, tickets to cultural events, books, housing construction and waste collection, among other things. The government should collect additional 18.5 bln CZK to the state budget with proposed amendment in 2012.
"The government has reached a unanimous agreement on the amendment to the VAT law," Prime Minister Petr Necas said. On the basis of the ruling coalitioncs agreement, the money from VAT is to be used for the planned pension reform. Pensioners and low-income households with children will be affected the most by the change, according to the Finance Ministry. Pension indexation and social benefits are however expected to offset the change.
Living costs of pensioners will grow by nearly 2 percent 2012, by Kc313 a month, according to the Finance Ministry's calculations that do not yet include any compensations. Low-income households will see their living costs rise by Kc263 or 1.87 percent a month. The VAT change will, however, increase living costs of all the households in 2012, while in 2013 only pensioners and low-income households with children will see their costs up. Others will see their costs fall slightly in 2013.
According to David Marek, the chief economist of the company Patria Finance, monthly consumption expenditures should grow by Kc133 per capita, or Kc301 per household next year. VAT unification as of 2013 should lower average monthly consumption expenditures by Kc11 per capita, or Kc24 per household, Marek said. "All in all, the VAT changes will raise the price level by 1.2 percent, monthly consumption expenditures of households will grow by Kc120 and public budges will improve by Kc23bn," Marek said.
At present, the basic VAT rate stands at 20 percent and the lower rate at 10 percent.