The Czech lower house has approved a steep 60% windfall tax. To help businesses and individuals affected by rising gas and electricity prices, the aim is to raise EUR3.4billion next year from profits that are deemed excessive.
Power prices in Europe have risen sharply since Russia’s invasion, and subsequent decreases in Russian gas supplies.
Prague’s centre-right government wants to tax additional profits from energy companies, such as CEZ, the majority state-owned utility, and other energy traders and miners.
The plan caused a stir in the affected sectors and one energy company announced it would be shifting its trading activities to overseas.
The tax will be similar to other European countries’ taxes and will be in place for three years beginning in 2023. Senate approval is required.
The Czech tax, which includes electricity producers is not within the scope of what was agreed to be a regulation by the European Union. They will already be affected by EU-wide price caps on wholesale electricity prices as well as on banks.
This tax applies to profits exceeding 120% of the 2018-2021 average. It is also added on to a 19% corporate rate.
The government intends to raise 85 billion crowns, or about 1.2 percent of the gross domestic products next year by advancing tax payments and smaller amounts over the following two years.
Even with this extra revenue, the government still expects a central state budget gaparound 4 percent of GDP next year.
In Italy and Germany, windfall taxes were introduced. The former has imposed a 25% tax on energy companies. The British government is currently looking at a plan to raise windfall taxes on oil and gas company profits.
Hungary is already looking for windfall income from energy companies and banks.
CEZ and ORLEN Unipetrol , which have warned of possible investment consequences from the Czech tax, will be most adversely affected.
Six Czech banks are also subject to tax: CSOB (KBC.BR), Ceska Sporitelna (ERST.VI), Komercni Banka (BKOM.PR], UniCredit (CRDI.MI”) and Raiffeisenbank(MONET.PR).
Both private-owned EPHs and Sev.en Energy can be affected.
EPH, a private firm, stated that including foreign commodity trade revenue in its decision was “absolutely absurd”. It stated that it would move its commodity trading, with an estimated volume of over 500 billion euros in fiscal year 2018, to another country.
Daniel Castvaj (EPH Communications Director) stated that “our European trade will develop elsewhere within the country, and the state budget will lose billions of revenues and the Czech Republic will have a reduced economic activity with extraordinary added value.”
Sev.en said that the “unprecedented” tax would “take money from the only firms capable of investing in new power and heating plants.”
Although bank shares rose Friday, they have been falling in recent months. CEZ fell 34% to 812 crowns from June’s 13-year high.
CEZ forecasts that CEZ’s adjusted net profit will triple to $60-65 Billion Crowns ($2.60billion).
Milan Lavicka, an equity analyst from J&T Banka, stated that CEZ would be most affected. He said that banks are not so affected because they don’t have so many windfall profits from the banking industry.
Komercni Banka reported Friday that the third quarter net profit increased by 34% year-on-year. MONETA projects that the tax’s impact will be EUR2bn in 2023-2025.
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