The Czech lower house of parliament approved a steep 60 percent windfall tax on energy firms and banks, in an attempt to raise USD 3.4 billion next year from profits deemed excessive in certain industries, to fund help needed for citizens and firms hit by soaring electricity and gas prices. The centre-right government in Prague is looking to tax excessive profits from energy groups such as majority state-owned utility CEZ, and other energy traders, miners, oil refiners, wholesale fuel traders and large banks.
The tax, similar to those imposed by other European countries, will apply for three years from 2023. The bill must still win Senate approval.
The government aims to raise around USD 3.40 billion, or about 1.2 percent of GDP, next year alone through advance tax payments, and smaller sums in the following two years.
The Czech tax goes beyond an agreed European Union regulation as it includes electricity producers, which will already be affected by EU-wide price caps on wholesale electricity prices, and on banks.
The tax applies to profits exceeding 120 percent of the 2018-2021 average and comes on top of a 19 percent corporate tax rate. The Czech government, as well as governments in other EU countries, predict that many energy companies make extra profit from high power prices which have risen sharply since Russia’s invasion of Ukraine and reductions in Russian gas supplies.
Germany and Italy have also initiated windfall taxes, with the latter slapping a 25 percent tax on energy groups. Britain’s government is considering a plan to extend windfall taxes on oil and gas companies’ profits, with the rate possibly set to rise 25-30 percent. In Central Europe, Hungary has already been going after windfall income earned by banks and energy companies.
Energy companies and banks affected
The Czech tax will mainly hit CEZ, as well as oil refiner ORLEN Unipetrol, which has warned this could hurt its investments. The tax also affects the six largest Czech banks – CSOB , Ceska Sporitelna, Komercni Banka, UniCredit, Raiffeisenbank and MONETA. They are claiming their profits as not being exceptional, especially after being affected by the coronavirus crisis.
Other large electricity producers and coal miners who will be affected include privately-held EPH and Sev.en Energy.
Milan Lavicka, an equity analyst with J&T Banka, states that CEZ is looking to take the biggest hit.
“The impact for banks is not so bad because the windfall profits are not so high in the banking sector,” he said.
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