Czech Republic’s Ministry of Finance has admitted to a budget error worth 60 billion CZK (approximately USD 2.8 billion) from the country’s windfall tax and excess profits tax. The state will collect 40.3 billion CZK from these taxes, compared to the 100 billion CZK expected in the approved state budget. The revised revenue estimate will not deepen the planned deficit of 295 billion CZK, but the government may have to look for alternative funding sources or adjust its spending plans.

The windfall tax imposed on energy, petrochemical, mining companies, and large banks was expected to collect 85 billion CZK but is now estimated to be only 28 billion CZK, based on developments in energy prices and publicly available data on the banking sector’s performance in 2022. The tax targets state-owned ČEZ, Daniel Křetínský’s Energetický a průmyslový holding (EPH), energy group Sev.en Energy, and the six largest banks in the country (Česká spořitelna, ČSOB, Komerční banka, UniCredit Bank, Moneta, Raiffeisenbank).

The revenue shortfall may impact the government’s ability to fund its planned spending, including compensations for households and businesses impacted by high energy prices. The state’s finance minister, Zbyněk Stanjura, stated that the state should have lower expenses on compensation for high energy prices, which were the intended use for the extraordinary measure’s revenue. However, the government has yet to announce any plans to address the budget error or adjust its spending plans in response to the revenue shortfall.

The reduced revenue from the windfall tax confirms some analysts’ warnings that the state could collect significantly less than expected from this tax. The shortfall also highlights the importance of accurate forecasting in budget planning and the need for contingency plans to address revenue shortfalls.

Article by Prague Forum