Business News

Photo: European Commission

Czech President Vaclav Klaus has vetoed a new law on VAT, a move that may complicate Czech trade with fellow EU members after May 1st. The World Bank has encouraged EU newcomers joining next month to adopt more economic reforms. The Czech National Bank has changed its strategy of managing foreign exchange reserves. The inflation rate has quickened to its fastest annual pace in nearly two years.

Klaus vetoes VAT bill

Vaclav Klaus
Czech President Vaclav Klaus has vetoed a new law on VAT. The law was designed to bring extra revenues to the state coffers and harmonise the rules with the EU. It cuts the top VAT rate to 19 from 22 percent and shifts selected goods and services to the top bracket from the preferential five percent rate.

The president's action sparked an irritated response from Prime Minister Vladimir Spidla whose cabinet must find a parliamentary majority to override the decision. To overrule the veto, the government needs 101 votes in the 200-seat house. However, the ruling coalition has been weakened by defections and holds only 99 seats and every vote is a new test of government stability.

President Klaus's office said in a statement he felt that while tax changes must be adopted for the country's EU accession on May 1, the new law on Value Added Tax was "an unsound mix" that could have a "seriously negative effect on Czech businesses and citizens".

Finance Minister Bohuslav Sobotka has warned that failure to adopt the law by May 1 would halt Czech trade with fellow EU members because it includes passages needed for integration into the single market.

Inflation accelerates in March

The inflation rate quickened to its fastest annual pace in nearly two years in March, but remained slower than expected. Czech consumer prices rose by 0.1 percent month-on-month in March and 2.5 percent year-on-year, matching the May 2002 level. Inflation has been rebounding since late 2003 after a period of deflation and received a further, one-off boost from EU entry-related indirect tax hikes and administrative changes in utility charges in January.

Unemployment falls from record highs

The unemployment rate fell to 10.7 percent of the workforce at the end of March, from a record high of 10.9 percent a month earlier. According to data released by the Labour Ministry, the number of jobless people reached over 559,000.

Industrial output up in February

Czech industrial output grew by more than 7 percent year-on-year in February from less than 4 percent in January, according to data released by the Czech Statistics Office. Productivity growth more than doubled in February to nearly 11-percent from a 4.2-percent increase a month before.

Central bank changes forex-reserves management strategy

Czech National Bank
The Czech National Bank has changed its foreign-exchange reserves management strategy. An active management of reserves investments has resulted in further growth of reserve assets, which the bank considers undesirable. At the same time, liabilities have been growing due to the interest paid on monetary operations.

The bank's board said that in this situation, it is appropriate to implement a strategy to sell at least part of the revenue from invested reserves on the market. Revenues from invested foreign exchange reserves will be sold gradually, in small volumes when the market conditions are considered appropriate.

The central bank did not reveal any details about the volumes of the sales or size of the returns it makes.

MPs set limit for non-cash payments at EUR15.000

Photo: European Commission
The lower house has set a limit for non-cash payments to 15,000 euros (or about 500,000 Czech crowns). The measure is aimed mainly at fighting money laundering and tax evasions. The Chamber outvoted the Senate which had proposed a limit of 1 million crowns.

Govt wants high tax on undeclared incomes

According to press reports, the government is planning to impose a special 50-percent tax on people who buy property using undeclared incomes. The measure is part of a bill on property declarations. It will clearly define what property people should declare, such as cars, real estate, ships, planes, and shares. The bill on property declarations is part of the government's effort to fight the grey economy.

World bank encourages reform in EU newcomers to maintain growth

The World Bank has encouraged EU newcomers joining next month to adopt more economic reforms, particularly on the fiscal side, to ensure that current widespread economic growth is sustainable.

In its quarterly report, the bank said the macroeconomic picture was mixed across the eight central European and Baltic states and noted that increasing regional political instability could slow down reform. The World Bank said the largest of the newcomers, including Poland, Hungary and the Czech Republic, have adopted plans to cut their budget deficits, but often lag behind on the most politically sensitive cuts in social spending.

It added that a stronger institutional framework was needed to ensure public money is well-distributed as the newcomers struggle to co-finance EU-sponsored projects and raise infrastructure investment while simultaneously slashing budget deficits.

Fiscal reform bills still face a tough path through Poland's divided parliament, while Czech and Hungarian fiscal cutbacks plans are mainly focused on administrative and not social spending. The pace of necessary fiscal reform could additionally be hit by increasing political instability, as many of these countries are governed by weak coalition governments - or face a government change, as in Poland.

Royal Dutch/Shell confirms expansion plans in Czech Republic

Royal Dutch Shell
Oil company Royal Dutch/Shell has said it aimed to expand its Czech refinery operations. However, the company declined to confirm whether it would continue to bid for the top Czech downstream oil group, Unipetrol.

Shell has been one of three short-listed bidders in the 500-million-dollar privatisation of a 63 percent state stake in Unipetrol, along with Polish refinery PKN and Hungarian oil and gas firm MOL.

Royal Dutch/Shell has confirmed it was interested in some Unipetrol assets but not the petrochemical business. Shell, along with Italy's Agip and U.S. oil firm ConocoPhilips, are members of a consortium that owns a 49-percent stake in the Ceska Rafinerska refinery, a unit of Unipetrol. The consortium may exercise an option for the remaining 51-percent stake in the refinery following the Unipetrol sale. By doing this, Shell would also boost its presence in the country without buying into the indebted parent conglomerate.

The Czech government is expecting bids for Unipetrol by April 23. The group owns refinery and chemicals assets and operates the country's top fuel retailer.

Czech car sales fall, Skoda raises share

Czech passenger car sales dropped by 10.4 percent in the first quarter year-on-year. The Car Importers Association attributed the decline primarily to buyers waiting for an expected reduction in VAT from the current 22 percent to 19 percent. As for the individual makes, Czech Skoda Auto strengthened its market share to 48 percent. Ford came in second a long way behind, with a share of less than 6 percent share, and Volkswagen was third with a 5.4-percent share.

In the first quarter, Skoda cars were the best-sellers in three categories. The absolutely best-selling car was the small Skoda Fabia economy model, which sold nearly 11,000 units, ahead of midsize-category Skoda Octavia with 3 thousand cars sold. The Skoda Superb was the best-selling large-category car with 630 units sold.