After long political discussions, the Czech Republic has adopted a law on the electronic records of sales (EET) in April 2016. The State receives immediate information about all cash transactions of entrepreneurs. Is the risk of potential misuse of such information and benefits of fair tax collection really outweighed? Are these initiatives, along with international initiatives of tax administrations to exchange information, the next step in fulfilling the vision of George Orwell?
The electronic record of sales concerns income tax payers – entrepreneurs – legal entities and individuals – sole traders that accept cash, cards, checks, bills of exchange or similar means, such as a gift cards, meal vouchers, tokens, etc. for their goods and services.
Local government units (municipalities, regions), the Czech National Bank and the Czech Post were excluded from the obligation to electronically record sales. An important set removed from the EET are sectors that are already subject to strong oversight, such as providers of financial and insurance services, and the energy sector. Another exception is the revenue from fares and related payments made directly in the means of regular public transport of people, and other exceptions stated in the Act.
How does the system work?
A system of electronic communication via the Internet between the taxpayer and the tax administrator was chosen for the operation. To ensure that the taxpayer files all sales electronically, he will be able to choose the device corresponding to the performance of his business activities (e.g. cash register, cashier system, mobile phone or tablet with a printer). The law does not stipulate that one has to use, for example, a certified cash register, or certified special equipment, one can use alternate methods.
Evidence of sales is based on immediate electronic reporting of cash transactions to the tax authorities in XML format. In response to this electronic message, the tax administration will immediately send back a fiscal identification code to entrepreneurs, which the entrepreneur will print on the receipt for the customer. The bill (hard copy or electronic form), with this unique code, will be used for the follow-up control confirming that the payment was actually reported to the tax administrator. This process is referred to as the “standard method” of the system.
Besides the “standard method” in strictly defined cases, a “simplified regime” of the records of sales will operate. In the simplified system, the entrepreneur does not send the report of sales at the actual moment of sale to the tax authority, but will be obliged to send it later within 5 days of receipt of the revenue. It means that he will not obtain a fiscal identification code and, thus, will not have to provide it on the receipt for the customer.
Implementation terms
Entrepreneurs will enter into the system of record of sales gradually, as follows:
- 1st Phase – as of the 1st of December 2016 – accommodation and food services (e.g. the sale of refreshments, if this is a business),
- 2nd Phase – as of the 1st of March 2017 – retail (e.g. the sale of fruit by the roadside, if this is a business) and wholesale,
- 3rd Phase – as of the 1st of March 2018 – other activities except those stated in the 4th phase (e.g. liberal professions, transport, agriculture),
- 4th Phase – as of the 1st of June 2018 – selected crafts and production activities.
The fruitfulness of the record of sales is based on the behaviour of customers who will require issuing of receipts from entrepreneurs. In order to increase the customers´ interest, the Act assumes the possibility to participate in the raffle of “records of sales lottery”. The specific form of the lottery will be defined by the Promoter.
Gain or loss?
The government believes that the electronic record of sales will reduce tax evasion and equalise the business environment in the Czech Republic. It is expected that, due to implementation of EET, the collection of VAT, taxes for entrepreneurs and businesses and deductions on social insurance will raise by 0.5 billion crowns and for 2017 the contribution to the state treasury should amount to 15.7 billion crowns.
The right-wing opposition disagrees with the introduction of the electronic registration in the long term and opposes it with the argument that it will do away with entrepreneurs and small businesses. The opposition also plans to submit, in May, a constitutional complaint against the parliamentary meeting at which the government enforced the law on the electronic records of sales.
After the introduction of a special annex to the corporate income tax return, and setting up a control statement to the VAT, here comes another instrument of control and regulation of the Czech business environment, the evidence of sales. Only the first months of operation will show us if this contributes to the settlement of the terms of business or becomes another bureaucratic burden.
