Jan Macháček

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Czech Business Weekly

Tangled taxes, distorted rents and strange phone calls at Česká televize

26. 11. 2007
International auditing and consultancy group PricewaterhouseCoopers (PWC) has published a detailed study revealing that as far as the administrative costs of paying taxes are concerned, the Czech Republic is by far the worst offender in the European Union.

The average company must spend 930 hours every year filling in different tax forms and accommodating the demands of the Czech state. In Bulgaria, which is the closest EU member state to the Czech Republic at the bottom of the ranking, it is only 600 hours per year. PWC clearly states in the study that recently approved reform will improve the income situation of the state by widening the tax base, but it will not simplify the complex procedures.

It is very embarrassing news for the current coalition government— which on behalf of the Civic Democrats (ODS) especially—would like to present itself as “right wing.”

In the first year of Prime Minister Mirek Topolánek’s reform package, overall taxation will go up and complicated new procedures like that of “supergross wage” will make the system even more labyrinthine initially, as employers sort through to deal with the changes. So there is a good chance that next year, if a similar study and ranking is undertaken, we will be further down in the rankings and in a league of our own.

Originally in its electoral program, the ODS proposed an absolute simplification of the tax system; a flat tax with no deductions, relief or exemptions, a single rate of value-added tax (VAT) and a one page tax form for both individuals and entrepreneurs, etc.

The result of the reform is that people who earn a lot will pay much lower taxes. This also applies to ministers who will help themselves enormously. It is a case of political marketing and from this point of view it is not very smart. And if you lower taxes for high earners, you have to somehow also offer help to others. This can be done by making the tax system straightforward, readable and transparent. However, the ODS has not delivered. After they ejected Vlastimil Tlustý—the original author of the blue book (reform plan)— from office, the party lost any momentum toward simplicity.

The complicated tax system is not only a legacy of communist and maybe even Austrian bureaucracy, it is also an indicator of the extent to which Czech politics is controlled and held hostage to vested interests, special interest groups and lobbyists. These people are as afraid of simplicity and transparency as vampires are of crucifixes.

With such an environment and reputation, it is surprising that anybody is willing to undertake enterprise in this country. The good news is that the simplification of the tax system is not an ideological issue. Left-wingers usually demand higher taxes on the rich, but there is no reason why left-wing parties should want a convoluted tax system. So if the current coalition is unable to make genuine headway on reform, there is still a chance that someone else might.

It only needs courageous politicians—from any party—who are willing to set limits to their powers. A complex tax system means a lot of power is invested not only in bureaucrats, but also in politicians, who decide on the reliefs, deductions, exemptions, tax holidays and all kinds of other intricacies.

Publish and be…

The senior news editor at public broadcaster Česká televize, Michal Petrov, told daily Lidové noviny on Nov. 21 that before Česká televize decided to broadcast a report about the business connections of Topolánek’s unofficial adviser Marek Dalík two months ago, he began receiving some very strange phone calls. He said that an unidentified, threatening voice told him that “if the report is broadcast, it will be the end. Do you understand what the end means? It will be your end!”

It has been two months since the calls began, but we are only now hearing about them from Petrov. The news editor also admits (or more precisely does not exclude), that these phone calls are quite normal and frequent, almost part of the job. Petrov decided to disclose them partially because his subordinate reporters complained to the board of Česká televize that he did not give their work due promotion.

Petrov was mistaken. That he receives such strange phone calls so frequently is very disturbing news about the quality of Czech democracy and the freedom of the press, but as a senior editor, Petrov has only two options. Either he is obligated to immediately inform his bosses about the calls and also his subordinates and the media in general—and also be ready to record the calls. Or the alternative is to never, ever under any circumstances speak about the calls to anyone. Thus, Petrov himself absorbs all the heat and his subordinate reporters are never aware of political pressure.

Most accommodating

Apartments and housing constitute an endless source of trouble for Czech politicians. After Stanislav Gross, Tlustý, Miroslav Kalousek and who knows who else, now it is Prague Mayor Pavel Bém’s turn. Bém is reportedly renting a villa on the cheap for only Kč 22,000 per month. The market rent for such a villa is said to be twice as much. Another wrinkle is that the owner of the villa, Zbyněk Kareš, is involved in real estate dealings with City Hall.

It is hard to figure out why politicians in this country cannot arrange their accommodations relative to their means like millions of other people who pay mortgages or rents.

Part of the reason is that our housing market is distorted at many levels by loopholes and special privileges. We live in an apartheid society in which one group of people pays regulated rent and the second group pays market rent, or a mortgage. Thus the notion, that one must “be smart” and “arrange it somehow” prevails at all levels of society. Another reason may be that Czech politicians simply like to receive gifts.

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