Czech insurance companies want to replace fiscal changes

Insurance companies are following the bank route, as they made a request to the government to replace the new planned fiscal regime for technical reserves with a contribution to some development fund, like one funding schools or highways. The new fiscal regime will remove the tax deductible status for technical reserves, which the finance ministry projects will have a positive fiscal impact of CZK3.8bn in 2020. The rationale behind the change is that insurance companies are using the technical reserve provision for tax optimization purposes, at an excessive rate. The counter argument of insurance companies is that the measure will lead only to a one-off fiscal impact, but it will make insurance products more expensive. Given the example with the bank sector, where PM Andrej Babis pushed through an idea to have banks contribute to a national development plan rather than have their assets taxed, insurance companies would like to get the same treatment.

There are some major differences in these cases, and we believe insurance companies are trying to exploit a loophole. First, the fiscal treatment of technical provisions has always had some limits, the only thing the finance ministry is doing is to close a tax optimisation loophole. Unlike with bank sector, this is not a new tax. Besides, it is highly arguable that the bank asset tax idea, which the CSSD promoted, would ever receive enough political support, either in the government or in parliament. What Babis did was to take advantage of the situation, securing more money for capital investment. What insurance companies are trying to do is different, and we doubt that their attempt will be successful, because they are only fighting against the removal of a favourable tax treatment, not against a new tax.

At any rate, we believe that this may be some political debate, but the initiative is doomed to fail, as we don’t see politicians arguing to anger voters because of it. While the bank asset tax idea didn’t quite have strong public support, keeping a preferential fiscal regime for insurance companies will certainly provoke discontent.

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