Energy Taxes in the Czech Republic

1. Energy Taxes in the Czech Republic „Energy Taxation in the EU“ Prague, 30th September 2010 Ladislav Minčič Ministry of Finance of the Czech Republic

2. I. Structure of the Presentation • Brief history of energy taxes in the Czech Republic • The first phase of “Environmental tax reform - ETR” in the Czech Republic • Current state of energy taxes in the Czech Republic • Future discussionsandconclusion

3. II. Energy Taxation Brief History in the Czech Republic • Energy taxation mentioned usually in association with so called “Environmental Tax Reform - ETR” • ETR introduces environmentally motivated indirect taxes with revenue recycling via other fiscal policy instruments (e.g. a decrease in labor taxes), i.e. revenue neutrality • In the Czech Republic the ETR was assumed to be implemented in three phases between the years 2007 and 2015 • The first phase was connected with an obligation to implement the Energy Directive 2003/96/EC (in the case of electricity and solid fuels, the Czech Republic negotiated transitional period until 1st January 2008) • Currently the debate over the second phase of ETR is at a standstill

4. III. The First Phase of the ETR in the Czech Republic • Full implementation of the Energy Directive 2003/96/EC • In Act no. 261/2007 Coll. On Stabilization of Public Finances – Taxation of electricity, solid fuels, natural gas and other gases • The Directive allows for some full or partial exemptions eg. renewable sources, commodities produced from biomass, or energy products combusted in energy intensive enterprises • The debate over recycling mechanism • reductions in health insurance • reductions in labor income tax • reductions in contributions on state employment policy • Finally, no revenue recycling mechanism was chosen because the rates have been set at minimum levels

5. IV. Energy Taxes in the Czech Republic • Tax base and rates • Consumed electricity (28,30 CZK/MWh) • Combusted solid fuels (8,50 CZK/GJ) • Combusted natural gas for heating/stationary engines (30,60 CZK/MWh) • Natural gas as propellant – gradual increase in rates up to the year 2020 (1 € = approximately 25 CZK) • Taxpayers • Usually suppliers of electricity, solid fuels or natural gas • Supply network runners

6. V. Exemptions from Taxation:Electricity Electricity • used for electricity production • of solar, wind, geothermal origin, produced from biomass • produced in hydroelectric installations • generated from methane emitted by abandoned coalmines • generated from fuel cells • produced and simultaneously consumed in motor vehicles • used for running railways, trams, trolleys... • used in mineralogical and metallurgical processes

7. VI. Exemptions from Taxation:Solid Fuels and Natural Gas • Natural gas used for heating in households Electricity of solar, wind, geothermal origin • Solid fuels and gases used for electricity generation • Solid fuels and gases used in Combined heat plants if the heat is delivered to households • Natural gas and solid fuels used for the purposes of navigation within Community waters • Solid fuels used for coke production • Solid fuels and gases used in mineralogical and metallurgical processes

8. VII. Energy Taxes Revenue ( in CZK bn)

9. VIII. Future Discussions&Conclusion • ETR and next steps • Green tax or general green budget ? • Our solar problems – price of energy • A need of CO2 tax – EU level and harmonization – possible restructuring of energy taxes • Increasing share of indirect taxation in revenues

10. Thank you for your attention! Ladislav Minčič First Deputy Minister Ministry of Finance of the Czech Republic ladislav.mincic@mfcr.cz