Meal vouchers are one of the most widely used employee benefits in the Czech Republic. They are advantageous for employees as they increase their real net income because income tax is not paid on meal vouchers, and also for employers, who avail of the tax advantages of meal vouchers. If a company decides to provide meal vouchers, it may count up to 55% of the price of one main meal per shift as a tax expense. Providing meal vouchers is not only beneficial from the income tax point of view – both employers and employees also save on social and health insurance payments, which are not calculated on the value of meal vouchers.
In January 2008, the Czech government drew up a draft act abolishing the tax break on meal vouchers. The public finances reform approved last year had planned on this step, but the tax benefits of meal vouchers were left unchanged in the final version of the reform. The new draft act now has a real chance of being passed, which has given rise to contradictory reactions. Some commentators believe that all sides will lose out, while others think it will make little difference.
Advantages for employers and employees
Meal vouchers are one of the most widely used employee benefits in the Czech Republic. They are advantageous for employees as they increase their real net income because income tax is not paid on meal vouchers, and also for employers, who avail of the tax advantages of meal vouchers. If a company decides to provide meal vouchers, it may count up to 55% of the price of one main meal per shift as a tax expense. Providing meal vouchers is not only beneficial from the income tax point of view – both employers and employees also save on social and health insurance payments, which are not calculated on the value of meal vouchers.
This significant tax break is now to be scrapped. The government originally planned to abolish the tax relief on meal vouchers as part of the public finances reform in 2007; according to Czech Television (Česká televize, ČT), the state loses approximately CZK 2 billion (€7.8 million, as at 13 February 2008) on this exemption each year. However, the proposed abolition did not happen. At the start of 2008, ČT broadcast a report claiming that the biggest issuer of meal vouchers in the Czech Republic, Sodexho Pass, had allegedly paid CZK 2.6 million (€100,000) to a public relations agency called No Comment! – which is said to have close links with the governing Civic Democratic Party (Občanská demokratická strana, ODS) – to lobby for the tax benefits of meal vouchers to be left unchanged as part of the public finances reform. Two days after the report was broadcast, Prime Minister Mirek Topolánek announced that he intended to scrap meal vouchers.
Contradictory reactions
This quick reaction generated contradictory opinions – some commentators claim that all of the parties concerned, that is, the state, caterers, restaurateurs, employers and employees, will lose out if the tax advantages of meal vouchers are withdrawn.
Sodexho Pass spokesperson Radek Maršík declared: ‘If the expenses of employees’ meals are no longer tax deductible, companies will pay CZK 1.1 billion (€3.8 million) more per year in income tax. On the other hand, the state will lose CZK 1.9 billion (€7.3 million) in value-added tax (VAT).’
Caterers and restaurateurs oppose abolishing the tax break on meal vouchers. They are concerned that this will cause their revenues to fall sharply, because in some establishments meal vouchers account for over half of turnover. According to the President of the Czech Association of Hotels and Restaurants (Asociace hotelů a restaurací České republiky, AHR ČR), Pavel Hlinka, scrapping the tax advantages could cause the ‘fatal collapse’ of the entire sector. Mr Hlinka claims that even a lower percentage of meal voucher revenues would be indispensable for a large proportion of catering establishments.
Trade unions condemn policy shift
The trade unions also spoke out against removing meal vouchers’ tax benefits. They believe that the draft act is mistaken and hasty. On its website, the Czech-Moravian Confederation of Trade Unions (Českomoravská konfederace odborových svazů, ČMKOS) warns Prime Minister Topolánek that making meal vouchers non-tax deductible is an admission of his guilt and an attempt to sweep the entire corruption scandal under the carpet. It is mainly employees who will be penalised for this scandal, according to the trade unions.
Impact on employers’ motivation
As a recent survey revealed, a number of companies will stop contributing towards employees’ meals if the tax relief on meal vouchers is cancelled, which means that workers will end up paying more for their lunches. Some companies are therefore considering introducing canteens, which should continue to enjoy tax benefits. Meal voucher providers are of the same opinion. The Czech News Agency (Česká tisková kancelář, ČTK) quoted the Managing Director of Accor Services CZ, Roland Morizet, as stating: ‘For the majority of companies, the tax advantages are one of the principal reasons for providing a contribution towards meals. Scrapping them would have a negative impact on employers’ motivation to continue providing this benefit.’
However, analyst David Marek of Patria Finance investment bank believes that withdrawing the tax relief on meal vouchers would not have much effect on employers’ decision whether to continue to provide them to their employees. Mr Marek explained to the iHNed.cz news server: ‘It’s something that has a minimal influence on employers’ decision-making.’
Soňa Veverková, Research Institute for Labour and Social Affairs
Eurofound recommends citing this publication in the following way.
Eurofound (2008), Tax break on meal vouchers to be scrapped, article.
