Senate approves third, reduced VAT rate

Foto: Barbora Kmentová / Radio Praga

The Senate on Wednesday approved a draft bill which would introduce a third Value Added Tax rate. The 10-percent rate should apply to books, medicine and baby food as of January 2015.

Photo: Barbora Kmentová
The introduction of a reduced tax rate for selected products is one of the government’s flagship measures. The proposal was put forward mainly to benefit pensioners and families with children.

Originally, babies’ nappies were also meant to be included in the lowest VAT group, but they were not included in the group of tax reduced items since the country was unlikely to get an exemption from European regulations.

The Czech Republic currently has two VAT rates of 21 and 15 percent. Books, baby food and drugs are currently included in the standard VAT at 21 percent, while food is subject to a reduced, 15 percent rate.

President Zeman has previously expressed his support for lowering the VAT on baby food and medicines. In the case of books, he said he would prefer financial support for public libraries. Reduced VAT rates are quite common in Europe. Fifteen EU member states, including Hungary, Belgium, France and Ireland, currently have two reduced VAT rates. The lowest rate usually applies to books and medicines.

The Senate on Wednesday also cancelled earlier plans for a unified VAT at 17.5 percent as of 2016. Former Finance Minister Miroslav Kalousek has criticised the move, arguing that the unified VAT rate would have cut the tax burden by 24 billion crowns.

If signed by President Miloš Zeman, the new bill should come into force from the start of 2015.