Czech president signs into law windfall tax on large corporations

President Miloš Zeman approved on Monday a “windfall tax” on excess profits for large-scale energy, oil, banking, and mining companies, which will be valid from the start of 2023. The rate of tax will be 60 percent, and the government expects to collect as much as CZK 45 billion from it next year.

The excess profit is calculated as the difference between the tax base and companies’ average costs in the four-year period of 2018-21, plus 20 percent. The new windfall tax will apply as a surcharge to the standard income tax of 19 percent.

Companies will now also be required to pay a deposit going into 2023, based on financial results from 2022. Should companies earn less money than in this year, they will get part of the deposit back.

A separate electricity levy was also signed into action by Zeman, mainly affecting large companies such as state-owned ČEZ Group and power plants. As ČT24 writes, “the levy will be 90 percent of the difference between the final selling price and the legally established price per megawatt-hour (MWh).” It comes into force in December 2022.

The levy means that, following the introduction of price ceilings for the sales of energy companies, 90 percent of the difference between the new price ceilings and total income made will go to the state.

Different caps apply, depending on the type of energy source and company: for example, EUR 70/MWh is set for nuclear plants, and EUR 170/MWh or EUR 230/MWh for lignite power plants (dependent on capacity).

This does not affect normal-sized companies or households. The government is hoping to accrue a total of CZK 80 billion for this energy levy, which will go directly into the state coffers.

Record profits have been posted by banking and energy companies in recent quarters. Reuters reported earlier this month that ČEZ, Czechia’s largest electricity firm, expects record full-year profits of about CZK 70 billion in 2022. Similarly, ČSOB, Czechia’s largest bank by assets, posted a record 23 percent year-on-year profit in the first three quarters of this year.

The passing of the windfall tax and electricity levy shows that the government no doubt wants to curtail such profits, and use the taxed income for the state budget, which is projected to be in a CZK 375 million deficit next year.