Finance minister redraws, reschedules electronic accounts proposal

Photo: Hekata5, CC BY-SA 3.0

Minister of Finance Andrej Babiš has signaled he is will to make concessions on the scope and timetable for one of his key tax proposals to come into force.

Photo: Hekata5,  CC BY-SA 3.0
One the flagship priorities of finance minister Andrej Babiš is the introduction of a new system whereby restaurants, hotels, groceries, and other businesses would electronically transmit their transactions every month to tax authorities.

The reason for the move is to clampdown on the billions of crowns of undeclared income, especially VAT, which escapes tax authorities notice when cash payments are made without being recorded. Tax evasion through non declaration of such earnings is estimated to be in the region of around 10 billion crowns a year.

Babiš argues that the results of similar systems, in such countries as Croatia, are clear. His critics fail to be convinced and point to many large West European economies where such steps are not currently required.

The proposal has sparked rifts within the three-way governing coalition and between government and opposition. Within the government, the smallest party, the Christian Democrats, have accused Babiš of spreading the net too wide and putting an unnecessary burden on too many self employed and small businesses.

The criticism has been echoed from the centre right, from both the Top 09 Party and the Civic Democrats. Both point to the expense of forcing small businesses to buy the special software creating receipts and automatically hooking them up with finance offices. Babiš hit back by saying the software could be rented for as little as between 100 and 300 crowns a month.

Even so, the Christian Democrats remained unconvinced and warned that it Babiš continued along his original path it could bring down the coalition government. The pressure appears to have had results.

The business daily Hospodářské Noviny announced on Monday that the finance minister has signaled a climb down with the result that many craftsmen and small businesses will no longer be included in the original target of around 600,000 who would have to comply with the new measure.

Implementation has also been phased in so that electronic accounts will no apply across the board from 2016. Instead, the obligation to fall into line will just affect hotels and restaurants from the start of 2016. Restaurants have been promised a cut in their VAT payments from the current 21 percent to 15 percent in a move which should prevent price rises and prevent the closure of the most marginal businesses. Small groceries, larger stores, and Internet sales will be expected to follow the lead in January 2017.

From the initial comments, the package appears sufficient to keep the Christian Democrats happy and on board. Babiš meanwhile has other problems stemming from the relatively disappointing tax receipts from the start of the year which have dented his reputation as some sort of fiscal magician. The Social Democrats are already in the wings suggesting that their previous plans for sectoral taxes on the likes of high earning banks and energy companies should be resurrected if state revenues continue to look like being able to cover increased spending.