property tax in the regions of the czech republic

15 Pages·2017·2.14 MB·English

Finance
PROPERTY TAX IN THE REGIONS
OF THE CZECH REPUBLIC
Jana Janoušková, Šárka Sobotovičová
Introduction management. However, political representation
The issue of fi scal decentralization in the often shies away from these tax increases in
context of the fi scal autonomy of local self- the context of the potential number of votes
governments is still current. The Czech Republic (Bird, 2010).
is among the countries with lower tax autonomy The tax on immovable property is one
(Blöchliger & Pinero Campos, 2011; OECD, of the basic tools of fi scal decentralization.
2016; Sedmihradská, 2015). The revenue from Fiscal decentralization in theory is associated
assigned taxes and from subsidy programs in particular with the effi ciency of allocation
makes up decisive share in municipal budgets. of funds to secure public goods within the
The state specifi es the percentage of revenue public sector. It is related to the discussion
for this type of tax that belongs to a specifi c of the strengthening of the role of local self-
part of the budget system (in the case of the governments, especially, the powers of decision-
Czech Republic i.e. regions and municipalities). making and responsibilities of municipalities
In terms of a fl exible response, this method in the economic fi eld. Decentralization allows
of funding does not give municipalities for a greater public involvement in decision-
much possibility, as they may infl uence the making and brings even greater transparency
amount of such revenues only through their and effi ciency in the use of fi nancial resources
interventions to a very small extent. In addition, (Tiebout, 1956; Bish & Kirk, 1974). Local self-
non-guaranteed access to subsidies brings governments can use the tax on immovable
a certain uncertainty and hinders the possibility property to infl uence the revenues of their own
of revenue prediction for the nearest period budgets in favour of improving the quality of life
(Janoušková & Sobotovičová, 2016a). in the place of tax collection (Haider-Markel,
One of the stable revenues of municipalities 2014; Marková, 2007; Bird, 2011; Roubínek
is a tax on immovable property (formerly real et. al., 2015).
estate tax) fl owing into municipal budgets in In the context of the economic
most EU countries. Thus, the principle of benefi t transformation in Central and Eastern Europe
(Keith & McCluskey, 2004; Mrkývka, 2003) in the 1990s, the extreme centralization has
and the principle of subsidiarity are fulfi lled, been overcome, moreover the ways of the
where decision-making and responsibility in gradual decentralization and strengthening of
public affairs takes place at the lowest level the autonomy of municipalities are searched
of public administration being closest to the for, which should lead to the effi ciency of public
citizens. Municipalities have the option to services (Tanzi, 1991). Authors, such as Smith et
adjust the structural elements of the tax, and al. (2011) are investigating the local perception
they can then manage their revenues. These of progress towards fi scal decentralization in
taxes are revenue stable (Birch & Sunderman, the context of the transformation of the Czech
2013; Bečica, 2014), and they do not have economy in the 1990s. Transitive economies
a distortion effect on work, as well as they (Bryson, 2010) confronted the problem of the
do not hamper the economic activity to such reconstructing of the self-government, the
an extent as the income taxes, which directly defi nition of competencies in selecting the
cut back the yield from a work activity. They sources of their fi nancing or by providing for
should lead the owners of immovable property their self-suffi ciency in acquiring revenues.
to a more rational and more effective property In the context of the taxation of immovable
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property, it is possible to keep track of more coeffi cient based on the number of inhabitants,
different approaches and empirical studies. the municipal and local coeffi cient (Janoušková
Property valuation for purposes of determining & Sobotovičová, 2016b).
the tax base of the real estate is often a hot The corrective coeffi cient depends on the
topic (Horne & Felsenstein, 2010; Presbitero, number of inhabitants in the municipality. The
Sacchi, & Zazzaro, 2014). Moreover, the Czech municipality has the possibility to affect the
Republic is criticized for its unit approach in amount of the coeffi cient by reducing it for
the determination of the tax base and a lack individual parts of the municipality by one to
of coherence on the fair value of the real three categories or increase it by one category.
estate (OECD, 2010; OECD, 2011; European The coeffi cient is applied to residential
Commission, 2015). The Czech Republic is buildings and their appurtenances and units.
also recommended an increase in this tax The corrective coeffi cient is also applied to
revenue, as it accounts for a small proportion of construction sites and due to modifi cations,
the total tax revenues in comparison with other the amount of corrective coeffi cients for
EU countries. Coombs, Sarafoglou and Crosby buildings and land may vary. The municipality
(2012) dealt with the possibility of using the may set the municipal coeffi cient at 1.5 and
taxation of immovable property in connection burden essentially only non-residents of the
with a potential increase in the revenue for municipality. Indeed, it applies to buildings used
municipal budgets. for family recreation, garages and buildings for
business. The advantage of this coeffi cient is
that it does not burden buildings for permanent
1. Taxation of Immovable Property in
housing, and vice versa, the disadvantage is
the Czech Republic
that a municipality cannot infl uence its amount.
In the Czech Republic, the tax revenue on The municipality can set the local coeffi cient at
immovable property fl ows into the budget two, three, four and fi ve. The entire calculated
of the municipality on whose territory the tax obligation is multiplied by this coeffi cient,
immovable property is located. Tax rates, are except for some land (arable land, grassland).
set by law and their amount is the same for all Tax revenues on immovable property have
municipalities. A municipality may affect the had a growing trend since 1993. This trend
amount of the revenue, in particular by means is infl uenced by many factors, for example,
of the coeffi cients, which it determines generally since 2001, by the improvement of the state
by a binding public notice. This is a corrective of registration in the Land Registry and
The development of the tax revenue from immovable property
Fig. 1:
in the Czech Republic
Source: Tax administration (2015), own processing
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transparency of ownership relations and by Region is the largest. The lowest population is
streamlining control and search operations of in the Karlovy Vary Region, which is also the
local fi nancial authorities. The most signifi cant second smallest by area. Large differences
factor, however, are legislative changes. between regions are also in population density,
In 2009, the exemption from completed which is the highest in the Moravian-Silesian
constructions of residential houses and Region (224 inhabitants per m2). On the
buildings, where insulation was carried out, was contrary, the lowest density of population is in the
abolished, along with introducing the possibility South Bohemian Region, which is the second
of setting the local coeffi cient. Another major largest by area. The Capital City of Prague
change that affected the tax yield on immovable shows a specifi c position among the regions,
property was the increase in tax rates from 2010 which has a small area but a large number of
onwards. The reduction of the tax revenues in inhabitants (12% of the total population in the
2011 occurred partly as a consequence of the Czech Republic) and thanks to it, it is a place
increase in the volume of arrears, but also due with the highest population density, which is
to additional reductions and subsequent tax 2,555 people per m2.
refunds for the previous tax year as a result of A tax imposed in individual regions (Fig. 3)
court decisions. The gradual precision of legal shows a similar trend as tax revenues on
norms had also a positive impact on increasing immovable property in Fig. 1. The tax imposed
tax yields on immovable property.
is growing with a signifi cant increase between
2009 and 2010, in connection with legislative
2. Position of the Regions of the
changes in those years. The highest amounts
Czech Republic in the Context of of the tax imposed are in the Central Bohemian
Tax Yields on Immovable Property Region, the South Moravian Region and
In the Czech Republic there are fourteen local Moravian-Silesian Region, while the lowest are
self-governing units, these are 13 regions and in the Karlovy Vary Region.
the capital Prague, not an independent region, As it can be seen from Tab. 1 the
however, has the same powers as a region. comparison of the regions in terms of taxes
There are many geographic, demographic and on immovable property is signifi cantly different
socio-economic disparities among individual when compared by area and population. The
regions. highest amount of taxes per 1 ha is in Prague
As seen from the graph (Fig. 2), in terms of and in the Moravian-Silesian Region and
the area and population the Central Bohemian in the Usti Region. These are the industrial
Fig. 2: The size of local self-governing units in terms of the area and population (in %)
Source: Czech Statistical Offi ce (2016), own calculation
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The development of the tax imposed of immovable property 2005-2014
Fig. 3:
(in thousands CZK)
Source: Tax administration (2015), own processing
The comparison of regions in terms of the tax imposed in 2014
Tab. 1:
(in thousands CZK)
Tax imposed per 1
Tax imposed Tax imposed per 1 ha
inhabitant
Prague 779,024 15,701 623
Central Bohemian 1,473,171 1,337 1,125
South Bohemian 678,594 675 1,065
Plzeň 542,278 717 945
Karlovy Vary 338,402 1,021 1,128
Ústí 923,401 1,731 1,120
Liberec 428,501 1,355 977
Hradec Králové 610,450 1,283 1,106
Pardubice 527,293 1,167 1,022
Vysočina 520,384 766 1,020
South Moravian 986,112 1,371 842
Olomouc 579,394 1,100 911
Moravian-Silesian 977,706 1,802 802
Zlín 463,443 1,169 791
Source: Czech Statistical Offi ce (2016), Tax administration (2015), own calculation
regions. According to the amount of taxes per corrective coeffi cient according to population;
1 inhabitant the highest amount of taxes is in on the other hand, Prague has not introduced
the Central Bohemian Region, the Karlovy the local coeffi cient.
Vary Region and the Usti Region. In contrast,
absolutely the lowest property tax per capita 3. Goal and Methods
is in Prague. It is the largest city in the Czech The primary objective of the research is to
Republic, which has namely the highest determine the use of legislative instruments,
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leading to an increase in tax revenues from
immovable property in the regions of the (4)

Czech Republic. Access of municipalities to
the increase in the tax revenues on immovable
where s means the number of categories of
property is then studied through coeffi cients
a monitored variable.
within the Moravian-Silesian Region. Using
Critical value K = χ(s–1) of chi-squared
a questionnaire survey the use of individual α
distribution with a degree of freedom df = s-1
coeffi cients and reasons, leading municipalities
was calculated using Excel and the function
to their implementation, modifi cation or cancella-
CHIINV (α; df) for the given level of signifi cance
tion are examined. This research closely follows
α 0.05 (Ramík & Perzina, 2014). To verify the
up on the research of the use of local coeffi cients,
accuracy, signifi cance (p-value) was calculated
which was carried out in 2014 and 2015.
and was compared with the chosen signifi cance
In the article, there is also a description
level (α = 0.05). The function CHIDIST (T; df)
of the immovable property tax development
was used for the p-value calculation.
in the Czech Republic based on time series
Methodically, the research relies on the
of the tax imposed in response to legislative
evaluation of secondary statistical data of
changes. The dynamics of the time series was
the Czech Statistical Offi ce and the General
investigated using a growth rate that was in the
Financial Directorate of the Czech Republic.
year t calculated according to formula (1):
The paper used the results of primary research
y focused on the application of the coeffi cients
k  t ,t  22,,3 3,., ....n., n (1) by municipalities of the Moravian-Silesian
t y
t1 Region, which was implemented in 2016, by
a questionnaire through personal interviews,
where y is the value of the immovable property email or telephone.
t
of the tax imposed in the year t, y is the value
t-1 4. Results and Discussion
of the immovable property tax imposed in the
year t-1. As it is evident from the data in Tab. 2, the
The tax imposed represents the amount of growth rate in 2009 in all local self-governing
tax as reported in tax returns and yield (Y) is units is greater than one, as a result of the
calculated according to formula (2): possibility of introducing a local coeffi cient,
which could be just used for the fi rst time in
TR this year. 389 municipalities introduced the
Y = * 100 (2)
TI local coeffi cient, which accounts for 6.22% of

the total number of municipalities in the Czech
where TR is tax revenue, TI is tax imposed. Republic. In 2010, the growth rate is again
By using the chi-square test it was verifi ed high and it is even higher than 1.5 in some
whether the municipality location in the regions and in Prague. This fact is infl uenced
district infl uenced its decision on assessing or by doubling the basic rate of tax on all land,
modifying coeffi cients. buildings and units (excluding agricultural land
A contingency table was created, based and buildings for other business activities).
on observed and expected frequencies, which Increasing tax rates led some municipalities to
were calculated according to the following cancel the local coeffi cient (it was the case of
formula (3): about 189 municipalities), other municipalities
introduced it newly in 2010 (83 municipalities).
n n nn Given that the various local self-governing
E  i  j n i j (3) units have different areas, types of land and
iijj n n n buildings, the impact of the increase in tax rates
is different, too.
where nis the sum of individual lines, n is the As already mentioned in the beginning, the
i j
sum of individual columns in the contingency structure of fi nancial resources of municipalities
table, n is the sum of all observed frequencies. is diverse and consists of tax and non-tax
The test criterion was calculated using the revenues. Tax revenues are critical for municipal
formula (4): budgets and taxes are made up of shared and
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Tab. 2: The development of the coeffi cient growth of the tax imposed
2006 2007 2008 2009 2010 2011 2012 2013 2014
Prague 1.04 1.01 1.09 1.01 1.54 1.02 1.05 1.02 1.02
Central Bohemian 1.01 1.03 0.99 1.23 1.37 1.01 1.17 1.02 0.99
South Bohemian 1.00 1.03 1.01 1.27 1.42 1.00 1.02 1.01 1.01
Plzeň 1.01 1.02 1.05 1.18 1.38 1.01 1.03 1.01 1.01
Karlovy Vary 1.03 0.99 1.03 1.44 1.54 0.99 1.05 1.02 1.02
Ústí 1.00 1.01 1.01 1.53 1.13 1.05 1.15 1.06 0.98
Liberec 0.99 1.02 1.00 1.49 1.26 0.99 1.29 1.01 1.00
Hradec Králové 1.02 1.00 0.98 1.42 1.33 1.01 1.06 1.02 0.98
Pardubice 1.02 1.00 1.00 1.36 1.33 1.03 1.08 0.96 1.01
Vysočina 1.01 1.01 0.99 1.35 1.24 1.01 1.07 1.00 1.00
South Moravian 1.02 1.02 0.97 1.11 1.37 1.02 1.05 1.04 1.00
Olomouc 1.01 0.96 1.08 1.09 1.56 0.86 1.08 1.01 1.00
Moravian-Silesian 1.00 1.00 1.04 1.16 1.48 0.95 1.18 1.12 0.98
Zlín 1.00 1.01 1.02 1.07 1.39 1.04 1.16 1.01 1.00
Source: own calculation
The development of the use and modifi cations of coeffi cients by municipalities
Fig. 4:
in individual regions (in %) in 2015
Source: own calculation
assigned taxes. Revenues on shared taxes The assigned tax, i.e. a tax on immovable
are transferred to municipal budgets under the property in the Czech Republic can respond to
Act on budgetary allocation of taxes and the the actual costs of the municipality. The amount
municipality has no possibility to infl uence their of tax revenues on immovable property within
amount. the local self-governing units is signifi cantly
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infl uenced by the decision of individual considered the most effective tool, by which the
municipalities on introducing or modifying municipality as a recipient of tax can signifi cantly
coeffi cients. The following graph (Fig. 4) increase the tax revenue on property on its
specifi es the percentage use of coeffi cients in territory, and it is used by an average of 8.3%,
individual regions. Due to differences in the and municipalities in the Karlovy Vary Region
number of municipalities in the regions, the use it most. In that region, more than a quarter of
percentage use was compared. municipalities have adopted a similar strategy and
From Fig. 4, it is clear that the municipal some of them have introduced a local coeffi cient
coeffi cient is most used. This coeffi cient applies since 2009 and have used it up to the present.
to buildings for family recreation and for buildings
used for business. Therefore, a coeffi cient does 4.1 The Form of Fiscal Autonomy in the
not burden the residents of the municipality. In the Moravian-Silesian Region
Central Bohemian Region, the Liberec Region Subsequent research aims to identify and
and the Usti Region this possibility is used by evaluate the regional context of the activities of
more than 30% of the municipalities. The use municipalities in the Moravian-Silesian Region
of the modifi cation of corrective coeffi cients is in connection with infl uencing tax revenues
low (in the Czech Republic the average use on immovable property. In the following graph
is 6.4%). There are not enormous differences (Fig. 5) the distribution of municipalities in
among regions and rather modifi cations are used the Moravian-Silesian Region by population
to differentiate various parts of the municipality. is shown. Size groups are determined by
The modifi cation is most used by municipalities population for applying the corrective coeffi cient
in the Usti Region. The local coeffi cient can be for calculating the tax on immovable property.
Fig. 5: The distribution of municipalities in the Moravian-Silesian Region by size groups
Source: Czech Statistical Offi ce (2016), own calculation
In the Moravian-Silesian Region, there corrective coeffi cient is used least, and only by
are 300 municipalities. Of these only 109 8 municipalities. A combination of introducing
municipalities (Fig. 6) use the determination the municipal coeffi cient is inspirational, while
or the modifi cation of coeffi cients for reducing corrective coeffi cients. This fact
infl uencing the tax revenues on immovable has been detected only in 5 cases, though.
property. Municipalities may introduce or This approach can be observed especially in
modify the amount of the three coeffi cients. municipalities that want to provide the required
Most municipalities use only the modifi cation tax yields especially from other entities other
of just one coeffi cient. The decrease in the than its own citizens.
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Fig. 6: The use of coeffi cients by municipalities in the Moravian Silesian Region
Source: own calculation
4.2 The Results of Empirical Research This is a local research, which focuses on the
and Discussion Moravian-Silesian Region. The region has a total
of 300 municipalities, and 250 of them were
The research is focused on exploring the use of
addressed. 100 questionnaires were placed into
coeffi cients of the tax on immovable property by
processing and the response rate was 40%.
individual municipalities and was conducted by
The structure of respondents (municipalities)
questioning. The research instrument involved
by size is shown in the following Fig. 7. The
a questionnaire, which included both closed-
graph shows that most respondents are formed
ended and open-ended questions, in which by municipalities with a population of 1,001
the respondent was not submitted response to 6,000. The structure of the respondents
options, and the respondent answered in his/ is infl uenced by a low response rate of
her words. The responses were then grouped questionnaires in the smallest municipalities
according to semantic categories. with a population of up to 1,000.
Fig. 7: The structure of respondents by size of the municipality
Source: own calculation
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Fig. 8: The structure of respondents by districts
Source: own calculation
The structure of the respondents in terms 4.3 Motivation for Introducing the
of districts in the Moravian-Silesian Region is Coeffi cients by the Municipalities
shown in Fig. 8. A small number of respondents
of the Moravian-Silesian Region
in districts with a large number of municipalities
The reasons which led the municipalities to the
is, among others, infl uenced by a varying
introduction of coeffi cients were determined
size structure of municipalities, where for
by using open-ended questions and then were
example in the Bruntál district there are 78%
grouped into semantic categories.
of municipalities with a population up to 1,000
As it is evident from Fig. 9 above the most
and, for instance, in the Karvina district there is
common reason that motivated municipalities to
not any such a small municipality.
introduce municipal coeffi cients was to increase
Fig. 9: Motivation for introducing municipal coeffi cients
Source: own calculation
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the revenue of the municipality. By determining to increase the revenue of the municipality for
municipal coeffi cients some municipalities a specifi ed purpose, the most often mentioned
wanted to increase the taxation of buildings for were: the beautifi cation of municipal areas,
family recreation or for business. The increase covering the costs of the cleanliness of the
in this tax liability thus does affect the population municipality, covering the costs of sewerage,
of the given municipality. In determining this fl ood protection measurements, health, sport
coeffi cient, municipalities cannot choose its and culture. The municipal coeffi cient was
amount, but they can specify to which types introduced in 28 municipalities surveyed.
of buildings (except buildings for permanent Corrective coeffi cients are determined
housing) the coeffi cient will apply. There were also by law, and as mentioned above, they can
reasons from which an insuffi cient orientation in be modifi ed differently for land and buildings
the fi eld of the tax on immovable property could through their increase or decrease. The
be inferred, for instance, the coeffi cient was set corrective coeffi cient for land was modifi ed by
by another mayor then they do not know the 18 municipalities and by 17 municipalities for
reasons or the coeffi cient was set at the request buildings.
of tax authorities. If the municipalities stated When modifying corrective coeffi cients for
that the reason for setting the coeffi cient was land a different objective is usually pursued than
Fig. 10: Motivation for modifying corrective coeffi cients for land
Source: own calculation
to increase the revenue of the municipality. Most Similarly, a different objective is pursued
often, this coeffi cient is used to differentiate than to increase the revenue of the municipality
the various parts of the municipality according while reasoning for the modifi cation of
to infrastructure and attractiveness as it does corrective coeffi cients for buildings. This
not have to be set for the whole territory of the coeffi cient is used to differentiate the
municipality at the same level (Fig. 10). An various parts of the municipality according
interesting reason is to increase the coeffi cient to infrastructure, attractiveness, amenities
as an incentive to shorten the building period, and access to employment. The reduction
because then the building will be taxed by using of corrective coeffi cients is also used in parts
the corrective coeffi cient for buildings, which is of the municipalities that are affected by the
lower. On the other hand, municipalities can negative impact of transport or mining activities
benefi t from a reduction in corrective coeffi cients (see Fig. 11).
for the reason of supporting the new building in The local coeffi cient was set by 18
the selected location. respondents and half of them had it already
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