Budgetary tax assessment is one of the effective solutions for cooperation between investors and municipalities

Wednesday, October 27, 2021

In a survey conducted by the Association for Foreign Investment, 71 percent of investors stated that local authorities are not interested in their activities.

Prague, 27 October 2021 – The results of a survey conducted by the Association for Foreign Investment (AFI) among investors who have invested in the Czech Republic in the area of industry and services in the past quarter-century revealed that there is almost no cooperation between investors and municipalities. Nearly 71% of respondents stated that local authorities are not interested in their activities.

Industry remains a reliable engine of the Czech economy, pumping billions of korunas into public budgets. However, the municipalities in question have an insufficient share of this money, which reduces their potential for development and their motivation to support the development of industrial zones and other investment activities. This is confirmed by a KPMG study that analysed the financial and non-financial benefits of industrial properties. As a result of this situation, the Czech Republic is losing premises that are suitable for the construction of industrial properties and is gradually falling behind in the competition for investors with neighbouring countries.

Klára Sobotková, deputy chairperson of the AFI Supervisory Board:  It is apparent from the results of the survey, in which nearly 71% of respondents stated that local authorities are not interested in their activities and possible support for their companies, that the majority of companies perceive that local authorities are disinterested in what happens at industrial sites located in municipalities, which corresponds to the gloomy situation in permit processes connected with any sort of development. The problem is a lack of positive motivation for cooperation. Local authorities focus only on the potential negative impact of business, as they do not see any real benefit. A possible solution could be, among other things, a change in budgetary tax assessment with greater income for the municipal budget from business activities within the given municipality.”

The KPMG analysis even worked out a model example of a 25,000 m2 manufacturing plant with 140 employees. The analysis confirms that, thanks to such a building, nearly CZK 3 billion in taxes, levies and insurance premiums would flow into public budgets over the course of thirty years. Of that amount, nearly CZK 2.3 billion in taxes would go to the state, whereas only CZK 15 million would go directly to the given municipality. The construction and subsequent operation of the plant would further generate total consumption of more than CZK 61 billion in the Czech Republic and total revenues of nearly CZK 112 billion. According to the KPMG analysis, the same production plant located in Germany would contribute CZK 1.5 billion to the municipal budget over the course of thirty years. The motivation of local authorities in the Czech Republic and Germany in the area of industrial development is thus abysmal. 

“As a leader of the Czech market, we can no longer sit back and watch municipalities stagnate and become apathetic toward development, even though they have a chance to flourish. When there are cities that have five industrial facilities in their backyards, but they have been waiting for decades for a bypass and expansion of their overloaded sewer systems, I say to myself that something is wrong here. Our society needs municipalities to have a greater share of the tax revenue generated within their city limits so that they can deal with the negative impacts of industry themselves and use some of that money for their own further development. This year’s adjustment of the property-tax coefficients is a step forward, but a fundamental adjustment of budgetary tax assessment is unavoidable,” adds Klára Sobotková, who works for Panattoni, among others.

The property development company Panattoni is a leader on the Czech and European industrial property markets. Its current appeal for more equitable redistribution of tax revenue in favour of municipalities is connected with the company’s long-term mission to be a good neighbour, which governs its behaviour in all locations in which it operates.

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