Czech sole entrepreneurs might soon give up their businesses

30-01-2004

The new financial reform that came into force in January makes it impossible for small entrepreneurs to avoid taxes, even when they have no revenue or a loss. Some of them are expected to give up their businesses and become unemployed.

Small entrepreneurs claim that the reform has dramatically complicated their situation. From now on, they are required to pay a yearly minimum tax disregarding their revenues or losses. Moreover the reform brought a rise in social security payments.

The opinions on the compulsory minimum tax differ, but the Association of Entrepreneurs considers the law unconstitutional and is preparing to file a complaint with the Constitutional Court. The President of the Chamber of Commerce perceives it to be discriminating against one group of inhabitants based on the way they earn their living. Mr.Bedrich Danda, the head of the Association of Entrepreneurs in the Czech Republic explains why small sole traders oppose new regulations.

"Now a small entrepreneur has to pay social security and a minimum tax and I'm asking: why would he do this? After all deductions, his 10 000 crown earned will turn into 6 000 or 7 000. It is more efficient to become unemployed, get unemployment or other social benefit and keep on working in the grey economy. The state won't get any money, any tax revenues, and will have to pay."

There are some exceptions from the compulsory minimum tax. But anyhow according to the Association of Entrepreneurs, there are about 100,000 people who are likely to close their businesses within the next three years. They will be unable to cope with the new tax burden. The numbers of entrepreneurs who became newly unemployed already slightly increased in December.

The state argues that many of these only own a business license, but are not active. The law should also create a balance between entrepreneurs and employed people, who reportedly pay more on taxes and social security. And it is aimed at preventing entrepreneurs from manipulating their accounting records and illegally avoiding taxes. However, Mr.Danda does not consider the new law an adequate solution to this problem:

"The state is unable to catch the cheaters, who avoid taxes, so it was decided to claim a minimum compulsory tax from everyone. And that is all wrong! We strongly oppose this law, but unfortunately the parliament has already passed it."

Czech entrepreneurs are not very happy with the business environment for small and medium-sized enterprises within the country. Many young people do not want to start business, but choose to get jobs with big companies instead, because it's easier. Although individual entrepreneur associations are not as united as one would expect, they all criticise the lack of information on new laws and reforms, which makes it difficult for small companies to keep track of changes. As Mr.Danda stresses the state could definitely do more.

"If you exacerbate the conditions for small and middle-sized entrepreneurs, then you cannot call this support. Unfortunately within the last fourteen years we were not successful in creating a so-called 'entrepreneurial middle class' with small sized companies. Unfortunately that did not happen. It is necessary to improve the business environment and all business associations have been saying for at least a year or two, that things are getting significantly worse."

30-01-2004

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