Czech taxes 'mean higher prices'

Czech taxes 'mean higher prices'

New President Vaclav Klaus applied to join while he was prime minister

The Czech Republic is facing higher inflation as a result of the new taxes that form part of the price of joining the European Union, the Czech central bank (CNB) said.

The country is one of 10 which will sign a Treaty of Accession to the EU at a summit on Wednesday, taking its membership to 25 states.

The new excise duties on tobacco and alcohol are required to bring the Czech Republic in line with taxation levels elsewhere in the EU, CNB board members Michaela Erbenova and Pavel Stepanek told reporters.

But the upshot will be higher prices - although neither would put a number to the effect over the next 12-18 months, the horizon for the bank's decisions about interest rates.

NEW CZECH TAXES

Cigarettes: 44% of price
(previously 40%)

Spirits: 265 crowns ($9.20)
(previously 234 crowns)

"We have certainty now that these changes will be implemented, so they will be included in the next forecast," Mr Stepanek said.

At a conference in February, he had suggested that prices could rise as much as an additional 2.5 percentage points a year.

Budget gap

Despite Mr Stepanek's certainty about the new taxes, Czech legislators remain unhappy at the prospect.

Also on Wednesday, they threw out the bill which was to enshrine the new tax levels in law.

The 92 votes it received amounted to only half the 184 members of parliament present, thus failing by the narrowest of margins to reach a majority.

The government has promised to re-introduce the bill to the 200-seat parliament in the coming weeks.

It faces the imperative not merely to sign off on EU accession, but also to help heal a massive hole in the country's finances.

The deficit in 2003 is expected to top 110bn crowns ($3.8bn; £2.4bn), but the new taxes are likely to raise only an additional 1.5bn crowns.