Commission Report (2002): Czech Republic

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 29: Financial and budgetary provisions

Progress since the last Regular Report

Some progress has been made both in terms of legislation and reinforcement of administrative capacity.

As regards the national budget and EC co-financed measures, the new Act on Financial Control, which entered into force in January 2002, as well as the Implementing Decree, which was approved in March 2002, aim to improve transparency of financial flows, in line with EU standards. As regards tax collection, fraud continues to affect the VAT system.

As regards application of the own resources system, administrative capacity continues to be strengthened. The co-ordinating Unit established within the State Budget Department of the Ministry of Finance co-ordinates the establishment of the necessary procedures, infrastructure and capabilities to fulfil the administrative conditions in the area of own resources`. The Unit has a permanent structure and will be responsible for the calculation, collection, payment and control of own resources and reporting to the Commission once the Czech Republic is member of the Union.

Overall assessment

As regards own resources, overall administrative preparations for the implementation of the acquis are well advanced. However, efforts are still needed in certain areas

The Czech Republic is able to calculate its overall contribution to the EC budget and able to forecast its GNP and VAT base applying the ESA-95 methodology. The Czech Republic has already made detailed simulations of the expected own resources to be collected and paid after accession.

In terms of traditional own resources, the administrative infrastructure for the assessment, collection and accounting of customs duties is largely in place. The State Agricultural and Intervention Fund should complete the preparations for collecting and accounting for sugar levies by mid-2003. However, further progress is needed with regard to the implementation of the centralised accounting system, for A and B accounts and on reporting cases of fraud and irregularities to the Commission.

In the area of VAT, the determination of net VAT receipts for own resources purposes requires close attention. At present, it is not possible to directly determine net collected tax on the central level, as net collected tax cannot be distinguished from related interest payments and penalties.

In terms of the GNP resource, the Czech Republic is already able to calculate GNI according to ESA-95, and ongoing improvements are concentrating on further harmonisation with the ESA-95 standards. The expertise of the Czech Statistical Office acquired in this area should ensure that the Czech Republic will be able to cope with all administrative conditions in the field of the GNP resource.

The necessary administrative tools to identify taxpayers and to collect VAT are in place. The Czech Statistical Office (CSO) will be in charge of the calculation of the Weighted Average Rate. The National Accounts are already compiled using the ESA-95 methodology.

The Own Resources Unit of the Ministry of Finance will need to further increase its administrative capacity in order to collect and transfer in a timely manner all own resources to the Community budget, as well as to accurately and regularly report to the Commission on the situation with regard to each of the types of own resources.

The Czech Republic should continue its efforts to combat VAT and customs duty fraud in order to adequately protect the EC`s financial interests.

In addition to the need for central co-ordination of the proper collection, monitoring and payment of funds to and from the EC budget, administrative capacity should continue to be strengthened in the context of the relevant policy areas described elsewhere in this report, such as Agriculture, Customs, Taxation and Regional Policy.

Conclusion

In its 1997 Opinion, the Commission concluded that, in order to ensure that own resources were established, monitored and made available in line with Community regulations, the Czech Republic would have to overhaul its existing customs system. Furthermore, for the purposes of accurately calculating the GNP resource, considerable improvements would have to be made to the national accounts to ensure that they were reliable, homogeneous and complete. The Commission added that improving the statistics would also be essential for drawing up the VAT own resources base, which would mean bringing the Czech Republic`s VAT system fully into line with the Community directives.

Since the Opinion, the Czech Republic has made considerable progress in these areas, in particular as regards the alignment of its customs system and progress towards applying the ESA-95. The legal framework for budgetary management and for the transparency and efficiency of financial flows to and from the EC budget is largely in place. Overall, preparations in this field are on track; however, it is important that the Czech Republic take the necessary next steps with regard to the own resources system.

Negotiations on this chapter continue. The Czech Republic is generally meeting the commitments it has made in the accession negotiations in this field.

In order to complete preparations for membership, the Czech Republic`s efforts now need to focus in particular on improving its calculation of the VAT base and guaranteeing the exhaustiveness of the national accounts, together with the further implementation of ESA95 methodology, for determining the GNP resource, so as to ensure the capacity to establish properly and make available the country`s contribution to each of the own resources of the Communities. With regard to administrative capacity, it is necessary that the Czech Republic continue the deployment of the human and administrative resources required to follow the Commission's operations and instructions concerning payments of own resources. In particular, greater efforts should be made in the area of tax collection, especially by combating fraud in the collection of VAT.

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