Czech government will waive VAT for gas and electric amid energy crisis

Energy price spikes are causing a significant headache for households throughout the Czech Republic. Now, the government has authorized the Ministry of Finance to waive value added tax (VAT) on energy for November and December, in an effort to alleviate the growing crisis.

The step should see households save a significant amount on gas and electricity, with around CZK 350 saved for households paying CZK 1000 a month in November and December, based on a 21 percent VAT rate for energy.

Minister of Finance Alena Schillerová also said the VAT exemption will be followed by an amendment to the VAT act from January 1, which will extend the waiving of VAT for as long as necessary to keep energy affordable for Czech households. Schillerová noted that this is an extraordinary step so far only used for ensuring a sufficient number of respirators during the Covid pandemic.

"As with respirators, where the reduction in VAT was immediately reflected in prices for final consumers, we want to support Czech households by introducing a zero VAT rate on electricity. A household that pays CZK 1,000 per month for electricity will save around 350 CZK," said Schillerová.

Schillerová will also ask the European VAT Committee to allow the Czech Republic to permanently reduce the tax rate for energy. Schillerová also said that the Ministry hopes for an exemption from VAT for energy for the whole of 2022.

The government may also waive CZK 8 billion previously required from the private sector as contributions to renewable sources of energy. The total annual Czech contribution to renewable sources is CZK 47 billion, of which CZK 27 billion is paid by the state and the remaining CZK 20 billion is paid by households and companies.

Households with an average energy consumption of up to three megawatts per hour will be exempted from the contribution for renewable resources, currently amounting to CZK 1,500 per year. The change in energy contributions will, according to the government, not require any action from consumers, who will simply not longer be billed for the contribution.

Prime Minister Andrej Babiš also hopes to discuss setting an emissions price cap with the European Commission. Escalating costs in the EU’s emissions trading system, which is used to regulate the level of carbon emissions allowed for member states, are another contributing factor to rising electricity prices throughout Europe.