Tax burden so far derisory, statements by ANB vice-president
“Given a derisory tax burden to date, the property tax increase in the Czech Republic can be considered fair, given its low position compared to the most developed countries in the world,” said Jakub Vysocký, vice-president of the National Association of Real Estate Brokers (ANB). Vysocký goes on emphasising that although the real estate market is expected to grow, the real estate rental tax represents a cost for landlords, which will inevitably be reflected in rental prices. According to government analyses, the manoeuvre is expected to bring in up to 10 billion crowns of new revenue for municipalities. In the Czech Republic, the tax burden on real estate has long been considered meager, which is also evidenced by the abolition of the real estate purchase tax in 2020. In the same year, the share of tax revenue from real estate ranked 24th among EU countries, representing 0.6 per cent and a modest 0.2 per cent of GDP, and 36th out of 37 OECD countries with an average value of 1.8 per cent of GDP.
Numbers, consequences and balancing the increase
The increase in real estate tax, in force since the beginning of the year, will have an impact, albeit minimal, on final rental prices. In a rented property with an area of 60 square meters, the annual increase is expected to range from 200 to 800 crowns, depending on location. In percentage terms, this could translate into a rent increase of between 0.5 and 1 percent.
According to the National Association of Real Estate Brokers (ANB), the reason for minimal rent increases is that landlords will not be willing to accept an increase in property tax as a net cost, passing the tax on to tenants. This could hit local entrepreneurs in particular, as most municipalities, at least for the time being, have not increased the residential property tax after 1st January.
The planned tax rate increase is up to 80%. At the same time, an inflation coefficient is introduced to calculate the tax, which will take into account the development of the price level in the coming years. The approved consolidation package, which includes the increase in property tax, also changes the taxation of certain types of land. Therefore, for example, owners of some garages will have to file their tax returns in January. The law also gives municipalities the possibility to reduce the property tax in their territory by applying a local coefficient between 0.5 and 0.9. In the absence of specifications, the coefficient remains the default coefficient under the amendment, i.e. around 1%.
An analysis by the real estate portal UlovDomov.cz shows that in the fourth quarter of last year, the average rent in the Czech Republic amounted to CZK 16,576, a decrease of 4% compared to the previous quarter and year. Compared to the previous year, rental prices increased in most cases by 1 to 6 percent. However, some types of flats or flats in some regional cities deviated from the average.
The response: municipalities uncertain about the increase?
There is uncertainty about how much and how municipalities will decide to implement the new increase, given the contrasting trends over the past year.
According to data provided by Finanční Správa, responsible for the Czech financial administration, more municipalities opted to increase property tax this year by applying the local coefficient than in the previous year. This year, 5,416 municipalities, including towns and districts, avoided setting the coefficient, an increase of 67 compared to last year. No municipalities made use of the option to reduce property tax through the use of the local coefficient.
Looking specifically at the timing of these increases, however, according to the analysis by Svazu měst a obcí, Union of Towns and Municipalities, most authorities only decided to increase property tax on residential property last autumn. This decision was driven by uncertainty about the financial impacts on resident communities. However, some municipalities proceeded to increase the local coefficient for commercial surfaces. Since the law only came into force in the new year, according to Kocková, there is no information yet on whether municipalities will increase the property tax for residential buildings in the future.
Source: https://www.ceskenoviny.cz, https://www.mfcr.cz/
Image source: https://www.barnes-barcelona.com/
Graphic source: https://storyset.com/
