The workshop was organized by the Faculty of Law, Masaryk University, and the Central European Professors’ Network, coordinated by the Central European Academy, as part of the Central European Professors’ Network.
About workshop:
Lecturers:
Anna Románová Vartašová (Faculty of Law, UPJŠ in Košice, SK)
Gábor Hulkó (Faculty of Law, Széchenyi István University, Gyor, HU)
Michał Mariański (Faculty of Law, UWM, Olsztyn, PL)
Michal Radvan (Faculty of Law, Masaryk University, CZ)
Date: Friday 19 January 2024, 12,00 – 1,10 PM CET
Venue: Brno, Masaryk University, Faculty of Law; Online via MS Teams
Annotation of the workshop:
The workshop – dissemination event on Local taxes in the Czech Republic, Slovakia, Poland, and Hungary aimed to present the role of local taxes in local budgets in the Czech Republic, Slovakia, and Hungary. The most significant local taxes (as adopted by the Parliament and consequently by municipalities and / or regions) were analyzed regarding their potential to influence the revenues of local (municipal and regional) public budgets. All presenters are respected experts in the European region in taxation and public revenues.
Local Taxes and their Role in Local Budgets
Local taxes are a condition sine qua non for the proper functioning of local self-government. The role of local taxes should not be neglected; local taxes have the potential to create a sufficient source of funding for public services and extend the possibilities of local self-government units to regulate local development effectively. Until the municipalities and regions are not be able to – at least partially – influence the amount of tax revenue, there will still be a threat to their autonomous actions.
Many national regulations (including the Czech Republic) de lege lata miss the definition of the local tax, and academic definitions are used. The local tax is a financial levy determined to municipal budget that can be influenced (by specifications of the tax base, the tax rates or the correction elements) by the municipality. Local taxes include both the tax in the strict sense and the fees (charges), i.e., it is not crucial whether the taxpayer obtains from the municipality any consideration or if it is a regular or a single levy.
The most important local tax is a property tax. Generally, it is possible to state that even if the constitutional regulation in V4 countries is very different and gives different opportunities for property tax adoptions both in national Parliaments and in local councils, the practice in all countries is very similar. However, in all V4 countries, local self-government units do have adequate powers to impose and collect local taxes. The best situation from this point of view is Hungary, collecting local business tax.
Content of the workshop
The workshop took place on Friday, 19 January 2024. Four leading tax law experts in their countries were asked to present their contributions. More than 30 students from all V4 Countries accepted the invitation for the event. The section started with the opening note by Michal Radvan, presenting the topic from broader perspectives and the speakers.
The first presenter, Michał Mariański, represented the Faculty of Law, UWM in Olsztyn, Poland. His presentation was inspired by the French system and reports of the French Cour des Comptes, which is the main jurisdiction responsible for the control of public finance in the French legal system. The description of the problems and issues of local government units in France by special financial jurisdictions like Cour des Comptes may show the future legal changes and initiatives that should be made in order to preserve the security of decentralized public finances. It should also be noted that the French decentralized administration was more or less copied in former Czechoslovakia, which resulted in an extremely high number of municipalities with a meager number of inhabitants.
Cour des Comptes, i.a., stated that the local units should take into account the growing vigilance of taxpayers to the weight and fairness of the tax in the context of the allocation of resources and the procedure of local tax payments. It is worth mentioning that this procedural issue was also selected as a big challenge by the Polish legislator, who had prepared a significant reform of tax procedure in Poland. Another point is that, due to the development of decentralization, the decline in government allocations, and the consequences of the abolition of the TP tax, communities tend to give more and more importance and attention to the management of local taxation. In order to maintain a good level of local finances, the territorial units have to benefit from their full tax potential. Because of the preponderance of the land and property component, this objective implies, in particular, a comprehensive and up-to-date understanding of the cadastral bases, which is a very complicated system. At the same time, given the taxpayers’ possible reactions to the increased level of local taxes, communities prefer to increase their revenues through more complete and actual databases than by an increase in rates. In consequence, the sensitivity to the evolution of various local direct taxes varies from one category of community to another, and it may happen that some legal or economic changes can affect only one type of local collectivity while others can affect all of them but in a different way. The report of Cour des Comptes cites some possible improvements in this area, concentrating mainly on the automatic calculation of taxes, which may eliminate the risk of human error. However, this automatic calculation may be challenging to introduce if the construction of the taxes is too complicated and if the calculation of these taxes will require cooperation between the state and local territorial units every time. The more tax procedure is dependent and related to the individual situation of the taxpayers, the more difficult it will be to create an algorithm capable of calculating such a tax. Another point is related to simplifying and digitalizing the tax declarations, which should be compatible with the system responsible for the auto(self)-calculation of the given taxes.
Michal Mariański defined five statements in the given area in Polish law: 1. the local taxation is mainly related to property tax; 2. but the property tax has a post-soviet construction; 3. the property tax law needs to be amended; 4. property tax is the most predictable source of income for municipalities, but it has many archaisms and shortcomings; 5. the definition of a building is crucial in the Polish legal system. The essential problem is that the current real estate tax system has drawbacks not only for municipalities but also for the payers themselves. Diversified court decisions mean that taxpayers running a business in several municipalities must consider the possibility of a different approach to their assets by local tax authorities. According to experts, the system requires changes, so the concept of cadastral tax, determined ad valorem, i.e., on the property’s value and not on its area, returns from time to time. Mariański argues that municipalities in Poland are diverse, which means that we cannot provide one concept that will be good for all municipalities (while for Warsaw, the zones would probably be related to the distance from the metro, with access to reasonable transport, for the rest of Poland we need different aspects). The first main benefit of the progressive cadastral tax is that it discourages investing a large part of one’s wealth in housing investments.
Anna Vartašová, representing P. J. Sararik University in Košice, Slovakia, summarized the local taxes in Slovakia. She pointed out the constitutional background: art. 65 of the Slovak Constitution states that municipalities finance their needs primarily from their own income; art. 59 states that taxes and fees are state and local. Local taxes in Slovakia are real property tax, dog tax, accommodation tax, non-winning gaming machines tax, vending machines tax, tax on use of public areas, tax on entering and stay of motor vehicles in the historical part of towns, and nuclear facilities tax. In addition, two local fees can be collected: the only mandatory local tax – local fee for municipal waste and minor construction waste, and the local fee for development.
Only two local taxes play an important role in local budget revenue: real property tax and local fee for municipal waste. Real property tax covers land, buildings, flats and non-residential premises. It is based on the area (administrative value for some lands), and a variety of tax rates are set by municipalities (for different types/kinds/uses of property, for different zones of municipality/city, for multi-storey buildings, for unmaintained buildings). The local fee for municipal waste is paid based on residency in the municipality or usage of a property within the municipality. There are more ways of determination (upon municipality): a flat rate (per person per day/year), an unweighted bulk collection (based on the frequency of pickups and trash can size), or a weighted bulk collection (advance payment and subsequent billing after the calendar year based on the actual weight of waste produced).
Vartašová concluded that local taxes and fees are important. However, they create only approximately 11% of the revenues of municipalities (real property tax cca. 7-8%). Slovak municipalities are strongly dependent on state funds.
Gábor Hulkó from Széchenyi István University in Győr, Hungary, defined four groups of local taxes in Hungary: property-type taxes, communal-type taxes, local business tax, and settlement tax.
The building tax covers residential and non-residential buildings. The tax rate is based on square meters (on the size of the building) or is 3.6% of the adjusted market value (50% of the market value) of the building. The land tax is imposed on non-agricultural land. The tax rate is based on square meters (on the size of the land) or is 3% of the adjusted market value (50% of the market value) of the land. The communal tax of individuals is paid by natural persons: owners of a building, part of a building, or land registered in the real estate registry. The object of taxation is all properties being in the possession of individuals. It is an itemized tax – in this way, the tax base is defined as “one” real property and is not based on its area or value. The tourist tax can be itemized (fixed sum per guest night) or value-based (up to 4% of the accommodation price).
The most important source of local revenues is the local business tax paid by the entrepreneurs whose registered office or place of business is located within the territory of the respective municipality (on a permanent basis) or who engage in business activities within the municipality’s territory for a period exceeding 30 days on a temporary basis. The tax base is the net revenue, reduced by the cost of goods sold, the value of intermediary services, the value of subcontracted services, the direct cost of research, experimental development, and material costs. The rate can reach up to 2% of the tax base.
Michal Radvan (Faculty of Law, Masaryk University, Czech Republic) set the definition of a local tax: an amount of money defined by law as revenue of local budgets if a self-government unit has the right to impose this tax or anyhow influence the revenue by setting the tax base, tax rate, or any of correction components. Generally, local tax can be PIT, CIT, VAT, property taxes, incl. transfer taxes, motor vehicle taxes, local excise and sales taxes, user charges (water supply and sewerage, electricity, gas. etc.), business registration and other registration taxes, tourist taxes, poll taxes, betterment fees, incl. building permits, planning permissions, etc., local wage taxes, animal taxes (dogs, cows, etc.), etc. There are seven possible local charges in the Czech Republic (dogs, waste, tourism, public places use, entrance, entry permit, evaluation of building land) where municipalities are free to adopt these charges by local bylaw. One obligatory local tax is also collected: a recurrent property tax. In this case, municipalities can set local coefficients and specify some exemptions.
Radvan advises choosing “the best” charges only, taking into account other functions of the tax (repressive, stimulation). He also suggests replacing local taxes administered by the municipality with centrally administered taxes if there is any possible surcharge. Specifically for the Czech Republic, he introduced several solutions: abolishing waste taxation, adopting a tax on nuclear facilities, an advertisement tax, and a general infrastructure tax. He also prefers the tax on motor vehicles as the regional tax.
Conclusions
It is possible to conclude that in all V4 countries, the role of local self-government is highly recognized. The constitutionality of acting and performing the self-governing powers is protected and reviewed by the constitutional courts, which underlines the high respect for self-government by the states. Even though the countries have different regulations of the actual process of imposition and administration of local taxes, and they do denote them with different terminology, the principles governing the existence and functioning of the local self-government are very similar. All countries have a wide space for improving the factual situation of rather underfunding of the local self-governing units and the potential to improve the legal and factual situation.
