Czech Republic: Substantial increase in fees associated with the mining of minerals

28.04.2016

The negative characteristics of a modern state undoubtedly include excessive red tape and a costly administration made worse by society's ailments corruption and clientelism, which increase the financial needs of the state. In order to ensure its necessary functions, for which it was originally created, and to cover negative “incidental” expenses, the state must look for sources of income wherever it can. In search of new “sources” it applies the salami tactics: it amends laws on a non-systematic basis and gradually increases taxes and fees. The process is as follows: a law is selected that imposes some financial obligations on the state and the burdens the law levies increased. This time, it was the turn of the Mining Act, which, for example, regulates the fees for mineral extraction and payments for mining areas.

Every act is accompanied by an explanatory memorandum that clarifies the reasons for the adoption of an amendment to the act concerned. If a look is taken at the explanatory memorandum in this case, it can be seen that the main principle behind the proposed amendment is to increase revenue for the state budget. The startling aspect of this statement is the fact that increasing revenues has been elevated to status of a principle, with principles being generally valid standards that apply in most cases.

Focussing on details of the amendment, or more precisely on the measures aimed at increasing revenue for the state budget, it can be concluded that the preferred way to achieve this is to increase the amounts that the state receives from fees for the surface mining of lignite (brown coal). The fees for extracting this mineral will increase dramatically, i.e. threefold. Seen through the eyes of the Ministry of Industry and Trade of the Czech Republic, the state will be better off annually by about 427 million Czech crowns (approximately EUR 16 million). Prioritising the state budget over the municipal budgets will be compensated by increasing payments from the mining areas to the benefit of municipalities to CZK 1,000 (approximately EUR 37) per hectare and year. As a result of these changes, eventually the municipalities will improve their financial situation by more than CZK 86 million (about EUR 3 million €) annually.

However, we consider the fact that the fee calculation will now be simplified, i.e. by multiplying the quantity of the extracted mineral by the applicable rate, to be a beneficial change. The existing complicated and confusing process in which the fee was calculated from the sales of products made from extracted minerals, will be abolished. An exception to this rule is the method of calculating payments for lignite extracted using surface mining: in this case, the amount of the payment will be determined according to the quantity extracted, the calorific value of the coal and the rate.

The amendment to the Mining Act, currently in the status of its third reading, was tabled by the Government. Due to the advanced stage of the legislative process and the consensus on it, it can be assumed that the amendment will be adopted in this or a slightly modified form. The effectiveness of the amendment has been preliminarily set at 1 January 2017.

According to the proverb “all’s well that ends well” we would like to end this article on a positive note. The proposed amendment brings some simplification and streamlining, especially in the area of calculating fees connected with the mining of minerals. However, the application of the principle of increasing state revenues by far outweighs these positive changes, and so it remains to be seen whether the overall outcome will in fact be positive.