Even after several years, the State does not know in what ways investment incentives helped the Czech Republic. Beneficiaries have drawn over CZK 75 billion.
Press Release on audit No 20/13 – 19 April 2021
The SAO examined the system for providing investment incentives. Since the adoption of a special law in 2000, the Ministry of Industry and Trade (MoIT) pledged to support 955 incentives by September 2020. By the end of 2019, beneficiaries had drawn more than CZK 75 billion, mostly in the form of an income tax credit. Most of the beneficiaries were from the manufacturing industry, mostly large Czech companies. The incentives were to help reduce unemployment, among other things. However, despite decreasing unemployment rates, the number of incentives was growing in recent years all the way until the end of 2018. The evaluations of the incentives granted do not indicate how they have specifically contributed to the economic development of the Czech Republic or to a higher employment rate. The audit did not find any formal errors in the administration of incentives on a selected sample of beneficiaries, both on the part of the MoIT and the CzechInvest agency.
The Investment Incentives Act was adopted in the year 2000, but the Czech state has been providing investment incentives on the basis of government resolutions since 1998. In 2008, the MoIT proposed to the government that the investment incentives granted under the law be abolished. An analysis of the University of Economics had shown that the incentives increased the gap between the most and least developed regions, distorted the market, and most incentives were aimed at sectors with a low added value. However, the government did not withdraw these incentives.
Since 2012, technology centres and strategic service centres can also benefit from incentives. However, by September 2020, only 20 such centres had received them. Companies in the manufacturing industry continued to show the greatest interest in investment incentives which have no obligation to generate a higher added value. The sector received 96% of the incentives pledged by the MoIT between 2012 and September 2020. The condition that the project must have a higher added value, such as recruiting people with higher qualifications, carrying out research, or cooperating with a research institution, was only added to the law in September 2019. The interest in incentives has dropped significantly since then.
Investment incentives were intended, inter alia, to contribute to a reduction of unemployment. The unemployment rate decreased gradually between 2015 and 2019. However, the number of incentives did not diminish, but instead was growing all the way until the end of 2018. Until September 2019, the law did not allow the MoIT to respond to a low unemployment rate through the provision of incentives. The applicant received an incentive simply by fulfilling legal conditions. Moreover, since September 2019, the government has been approving all investment incentives, not only strategic ones.
The evaluation of the incentives provided is carried out by an external company for the MoIT, as requested by the European Commission. However, according to the auditors, the evaluations do not show how the incentives have contributed to achieving the objectives in terms of employment or economic development of the Czech Republic. For example, the evaluations do not indicate the actual number of new jobs created or how high were the actual investments of the supported companies. In addition, beneficiaries can only meet the minimum values laid down by law. This means that the companies are neither obliged to fulfil the expected volume of investments, nor the number of newly created jobs which they vowed to reach when applying for the incentive.
Furthermore, the MoIT does not need to monitor – and does not monitor – the additional costs to the state which are linked to the incentives, nor does it account for them in its expenditures. The additional costs include, for example, the construction of infrastructure in industrial zones where the companies receiving support are active, or the costs of strengthening the police force in connection with employing foreign nationals in such zones. Also, the MoIT does not monitor the impact of the incentives on other enterprises in the region who operate in the same sector as the beneficiaries of the incentive.
- Audit Report from audit No 20/13 (pdf, 416 kB)