Czech Republic: Government considering increase in VAT rate on beer

The reforms would combine the current two lower VAT rates of 10% and 15% into a 14% rate, while maintaining a top level of 21%, the Finance Ministry said on April 11.

The ministry did not list all the items which could see VAT rates increase, but Czech TV, which first reported the plans on Monday evening and called them the biggest VAT changes in eight years, said hotels, beer, water and sport could see an increase.

Stanjura told Czech TV that beer would be among items moved to a higher bracket and that items would be judged on whether "there is a societal reason to consume more of these services".

A rise in the tax on beer could be the most eye-catching tax move in a country with one of the highest per-capita beer consumption rates in the world.

A half-litre of top-selling brand Pilsner Urquell typically costs around 60 Czech crowns ($2.79) in Prague, so an increase in VAT to 21% from 10% could lead to a 6.6 crowns rise in the retail price.

The VAT changes overall could raise 24 billion crowns ($1.12 billion) for the budget next year, Czech TV said.

The finance ministry estimated that combining the lower rates would lift budget revenue by a single-billion crowns figure, while shifting some lower-taxed items into the higher rate would boost income by the low tens of billions.

The VAT adjustments were part of a wider budget consolidation package still to be negotiated by the five-party, centre-right coalition government, it said.

Prime Minister Petr Fiala also said plans published in the media were not final.

"I will personally announce final proposals on the topic of lowering the budget deficits (resulting) from expert and political debates in about a month," Fiala said.

"Our coalition wants to look for potential savings primarily on the side of the state and only after that in people's pockets."

Czech TV reported that under the changes, services like lodging, water, sport and cultural activities that are currently taxed at lower rates would move into the 21% bracket.

The government is looking for around 70 billion crowns in budget savings or indirect tax increases to cut next year's deficit from a planned 295 billion crown gap this year, seeking to do its part to quell inflation running above 16%.

The government took power at the end of 2021 aiming to rein in debt levels that remain well below European Union averages but have grown in recent years at one of the fastest rates in the bloc.

But higher spending needs due to Russia's invasion of Ukraine and state aid necessary to ease the impact of soaring energy costs have hit its plans.

The central state budget gap should fall by 65 billion crowns in 2023, although the overall fiscal gap is expected to rise to 4.2% of gross domestic product, remaining above EU rules, according to ministry forecasts.