Business News

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New tax hike

The Cabinet has passed a proposal that would raise the Value Added Tax on a number of services and goods from 5 to 22 percent. The draft is designed to simplify the tax system, eliminate tax evasion and bring Czech legislation in line with EU norms. Among many other items, the change also concerns software. According to experts, a 17-percent rise in the already high prices of computer software may not only promote widespread software piracy, but could also seriously delay the Czech Republic's progress towards building an information society.

Komercni Banka to sue former employees

Komercni Banka is to sue its former employees in connection with transations with an Austrian firm that caused billions of crowns in losses to the bank. Former bank managers approved the deals despite staff reports saying they were suspicious. Komercni Banka's CEO Radovan Vavra, however, declined to specify whom the bank wants to take to court. Unofficial sources say those under suspicion include some of the former board members and highest-ranking managers.

Sikorsky to manufacture helicopters in Czech Rep. - press

US helicopter maker Sikorsky has decided to move the manufacturing of S-76 aircraft to the Czech Aero Vodochody company, according to the Czech newspaper MLADA FRONTA DNES. In the first stage, Aero will assemble helicopters from imported parts and later start producing them itself, including engine tests. The main reason for the decision is to lower production costs. Aero Vodochody produces training and combat subsonic aircraft. Sikorsky Aircraft Corporation, a subsidiary of United Technologies Corporation, is a world leader in the design and manufacture of advanced helicopters for commercial, industrial and military uses.

Rent regulation directive cancelled by Constitutional Court

The Czech Constitutional Court has overruled a Finance Ministry directive on rent regulation. The move will make life easier for property owners, including both municipalities and individuals who won their property back after the fall of the communist regime. Rent regulation in fact forced property owners to subsidise part of their tenants. An initiative to remove rent regulation originated in the Senate. Only about a third of Czechs live in flats with regulated rent which the senators consider highly unfair. Rent regulation has also often been described as the main obstacle to development of the housing sector.

Existing mobile operators to receive 3rd generation network licenses?

The Ministry of Transport and Communications will propose to the government that the 3rd generation UMTS mobile licenses be given to existing operators without organising a public tender. The operators would pay a fixed administrative fee plus an extra charge which is yet to be determined by the government. Observers say this method of granting the licence is easier for the government and beneficial for the current operators. However, a public tender or an auction could raise much-needed extra cash for the state budget. The method is still to be decided by the government, and according to expectations, the licenses should be awarded in 2001.

IPB crisis solved, hopefully...

The crisis surrounding one of the country's largest financial institutions - Investicni a Postovni Banka, or IPB - came to a head last Friday when the bank was placed under forced administration. No sooner had this news set in, than officials announced early on Monday that the troubled bank had been sold to another large financial institution, CSOB, making CSOB by far the biggest financial institution in the country.

The sale of IPB to a new strategic investor had been expected and CSOB had been mooted as a possible partner. However, what came as a surprise was the imposition of forced administration on Friday when a special police squad armed with sub-machine guns escorted the administrator appointed by the Czech National Bank into IPB headquarters.

CSOB received all assets and liabilities of IPB in exchange for a delayed payment which will be decided after an audit carried out by two independent international auditors. Until then, CSOB will keep IPB operations separate. CSOB however has already started replacing top IPB managers. According to preliminary findings by the administrator appointed by the Czech National Bank, IPB's losses in 1999 exceeded the bank's base capital.

The Czech minister of finance, Pavel Mertlik, justified the imposition of forced administration, saying the bank's collapse could have lowered the country's GDP by 3 to 4 percent. Mr Mertlik also explained that this was the cheapest solution available to the country.

I spoke to economist Andrea Ferancova, who is the head of Czech trading at Wood and Company, about the situation in the Czech banking sector. I asked her first, whether the radical action in IPB was really necessary.