The proposal to abolish the real estate acquisition tax wants the Senate to amend

Prague – The government proposal to abolish the property acquisition tax is returning from the Senate to the Chamber of Deputies. The Senate wants to amend it to correct legislative errors in the part of the bill that maintains the possibility of deducting mortgage interest from the income tax base. However, the aim of the proposal to abolish the acquisition tax remains, as does the possibility of deducting the interest. The bill will thus return to the Chamber of Deputies, which is likely to decide on it in September.

Initially, the government proposed that along with the abolition of the tax, buyers would not be able to deduct interest paid on new housing loans issued after January 1, 2022, from their income tax base. This was mainly criticized by opposition MPs. The Chamber of Deputies subsequently adopted an amendment during the final approval that retains the deductions but reduces the maximum amount from the current 300,000 crowns to half.

According to the chairman of the Senate's Economic Committee, Vladislav Vilímec (ODS), and Finance Minister Alena Schillerová (for ANO), this part of the proposal contains errors. According to Vilímec, in the end, it would make it impossible to deduct the interest.

"A monstrosity not linked to the entire wording of the law has passed us," stated Finance Minister Alena Schillerová (for ANO). She pointed out that the Ministry of Finance did not collaborate on the relevant parliamentary amendment, which, otherwise, offers MPs to process their amendments to ensure they are legislative correct.

The Senate's amendment, among other things, states that the 300,000 crown interest deduction limit will apply to loans granted by the end of this year. For loans granted from next year, only the new limit of 150,000 crowns will apply.

The property acquisition tax rate, which replaced the transfer tax in the past, is four percent and is paid by the buyer. In recent years, the state has collected around 13 billion crowns annually from it. Minister Schillerová has previously described the acquisition tax as unfair on several occasions. All previous attempts to abolish this tax, however, have failed. This was also unsuccessful last year when the Senate proposed it.

The minister admitted that in the past she always resisted abolishing this tax because the loss of state budget revenues of around 13 billion crowns was not negligible. She estimated the fiscal impact of abolishing the tax at ten billion crowns, noting that some of the money will return to the state in other taxes. The minister assured that even if the Chamber of Deputies confirms the law only in September, nothing will happen and taxpayers will not have to pay the tax.

The majority of senators welcomed the abolition of the tax in the debate and recalled previous efforts to abolish it. "I am glad that this immoral tax will finally be abolished," said Raduan Nwelati (ODS). "I do not think this tax is immoral; perhaps it is unreasonable," disagreed Jiří Dienstbier (ČSSD). Dienstbier is bothered by the fact that lawmakers approve tax regulations that reduce public budget revenues and do not address how to replace those revenues. "I am not willing to vote for any tax law that reduces public budget revenues," he added.

The amendment has retroactive effect. This means that people who had a deadline for filing a declaration until March 31, subsequently postponed by the ministry due to the pandemic to the end of August, will no longer have to pay the tax. If someone has already paid it, the office will return the money to them in the standard way as an overpayment, the minister informed. This applies to people who completed their registration in the land registry in December 2019 or later.

The law also extends the so-called time test for income from the sale of real estate not intended for personal housing from five to ten years. The extension of the time test will apply to properties acquired after January 1, 2021.