The windfall tax was introduced for the period of the next 3 years by amending the Income Tax Act and the Energy Act. Finance Minister Stanjura promised to increase the state budget revenues by approximately 100 billion CZK only in 2023. However, according to recent information, it is already evident that the state will collect much less from the windfall tax than planned. The Ministry of Finance admitted in April that the total revenue will probably not exceed CZK 40 billion and it is possible that the final tax revenue will be even lower. The original forecast was calculated by the Ministry of Finance on the basis of taxpayers' revenues for 2022 and commodity prices, but these were inflated due to the outbreak of war in Ukraine and related market uncertainty.
According to the amount of profits for last year, the state should have received up to CZK 33 billion from the extraordinary taxation of banking houses' profits alone However, banks are arguing against the taxation by referring to the fact that the increased profits for 2022 were mainly the result of inflation and the related unpredicted increase in the repo interest rate of the Czech National Bank to 7%, which was contrary to business plans of the banks for 2022. The higher difference between the repo interest rate of the Czech National Bank and the interest rates on customer accounts generated excessive profits. As a result of the increase in interest rates on deposits in customer accounts this year, banks' profits may decline, which will also reduce the basis for the extraordinary tax assessment. In the case of some taxpayers, the resulting tax liability may not exceed CZK 1 billion, which, given that the tax parameters were set in the Income Tax Act so that only the six largest financial institutions will be liable to the tax in 2023, may represent a significant blow to the projected state budget revenues for this year.
In the energy and petrochemical industries, the Windfall Tax is likely to affect 4 to 5 companies, but the revenue from the tax will also be reduced. As a result of the drop in energy market prices below the approved caps for the levy on profits from electricity production, the state budget cannot expect the projected revenues from the levy on excess electricity prices and in some cases the intended taxpayers have taken measures that may also affect their tax liability. For example, one company has moved the core of part of its activities out of the Czech Republic and other companies appear to be reinvesting their profits to increase production capacity, modernize production and achieve cleaner outputs.
It is already clear that the revenues from the Windfall tax will not fill the state budget, but on the other hand, the tax can also be a positive incentive for investment in modern industries.