Heterogeneous VAT taxation in the Czech economy
Heterogeneous VAT taxation in the Czech economy

Summary/Abstract: This study analyses the VAT tax rate heterogeneity for the case of the Czech Republic. While the European Union recommends tax harmonization, the Czech legislature differentiates among three VAT tax rate groups. Those tax groups' composition has recently changed as the government intends to ease the tax burden during the coronavirus pandemic. Yet, the Czech authority misses an impact evaluation tool of such policy measures for local industries. The EU ambition and the ongoing tax-policy reforms necessitate the model developed in this study which analyses the tax effect at a detailed industrial level. The simulation outcome discloses the sectors which are the most susceptible to VAT taxation changes and suggests the most beneficial tax differentiation scheme to boost economic production. The results support the current tax legislation changes in favour of the more heterogeneous indirect tax rates. A lower tax rate for the industrial sector seems especially advantageous in mitigating the gross domestic product's negative tax impact.

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