Road tax collection is administratively burdensome and the tax itself is inefficient. The Czech state collects four times less per one Czech crown in comparison with other taxes
Press release on audit No 21/34 – 21 February 2022
The Supreme Audit Office examined the management of the road tax between 2017 and 2020. The auditors looked into how the tax is collected, what results are achieved by tax administration bodies in the area of tax collection, and whether the system of road tax collection is efficient or is putting a strain on the administration bodies. The management of the road tax is costly and its efficiency is about four times lower in comparison with other taxes in the Czech Republic. This is caused by the administrative burden associated with the management of tax relief, slow automation and errors made in the vehicle register.
Between the years 2018 and 2020, tax administration bodies collected an average of CZK 15 of revenue per CZK 1 of expenditure. This is more than four times less than the average of other taxes collected, with an average of CZK 68 of revenue collected on all taxes by the tax administration bodies per 1 CZK of expenditure during the same period. In total, the tax administration bodies collected around CZK 6 billion in road tax in 2020 alone which cost the Czech state around CZK 460 million.
For example, the administratively cumbersome way of verifying tax compliance has had an impact on the efficiency of the road tax. The SAO found that in some cases it was difficult for the tax authorities to verify whether the taxpayer had been entitled to an exemption or a tax credit — such as the application of a tax credit to combined transport. Furthermore, it was difficult for the tax authorities to verify compliance with tax obligations of used car dealers who sold passenger cars with a maximum mass not exceeding 3.5 tonnes.
Slow automation to simplify the management of the road tax also has a negative impact. This simplification was envisaged by the 2017 ‘Tax Administration Bodies Development Strategy’, which intended to maximise the automation of data processing. However, until 2020, there have been no such changes in the road tax. In practice, tax authorities cannot compare data - in an automated manner - from their information systems with data from the road vehicle register. Taxpayers cannot, in turn, use data from assessed tax returns when submitting their tax returns via the online tax office.
Problems with currently used and implemented IT systems also make it difficult to administer the tax. For example, the verification of certain data in the register of road vehicles is extremely complex. For 16% of the records, the sum of the authorised axle loads for semi-trailers cannot be easily verified, more than 7% of the records contain an incorrect number of axles for trucks and tractors, and in the case of 6% of records it is not possible to determine the exact age of the vehicles. These errors make it difficult for the tax administration bodies to verify the data in the road tax returns submitted, but also place an additional burden on the taxpayers for which the tax administration initiates the procedure to remedy the deficiencies in their tax return.
Since 2020, the road tax rate for vehicles with a mass exceeding 3.5 tonnes has been reduced by 25%. Although this was a change in response to the negative effects of the COVID-19 pandemic, thus an emergency situation, it was proposed by the Ministry of Finance without a defined a time limit. The loss of revenue from this tax may continue even after the main reason for that change has ceased to exist. Due to this measure, the recovery of the circulation tax decreased by CZK 525 million on a year-on-year basis.
A number of measures to encourage the purchase of greener vehicles are also linked to the road tax. One of them is a measure from 2001, which increased the tax rate by 15% for vehicles registered before the year 1990. The rate then increased to 25% in 2008. However, the Ministry of Finance did not change or update the measure in over 20 years. It is currently inefficient and does not lead to a reduction in the average age of vehicles.
The road tax concerns commercial operators and is paid by approximately 830,000 taxpayers in the Czech Republic. It represents around 0.7% of the Czech Republic’s tax revenue.