The change, initiated by the nongovernmental Institute for Social and Economic Analyses (ISEA), was slated for discussion in the Parliament this week by the Civic Democrats’ (ODS) shadow minister of education, Walter Bartoš.

 

The amendment recommends that researchers receive the VAT refund either directly or through equivalent state co-financing of their R&D projects.

 

The modification would mainly affect those researchers working in state-run institutions. Scientists from private institutions can already claim VAT refunds because they engage in economic activities with final consumers, and the latter pays the VAT.

 

At the moment, when scientists need to buy supplies for use on a project, they pay VAT, but this is neither refunded by the state, nor is it financed by the European Union. The European Commission doesn’t recognize VAT as an “eligible cost” for its main research programs.

 

As a result, scientists have to take money from other sources to pay the VAT.

 

This usually means raiding projects with Czech financing. This is how money from the EU that should pay for salaries or for a project’s administrative overheads can go toward the project’s VAT costs.

 

In 2005, research institutes paid around Kč 80 million (€ 2.81 million) into the Czech budget, while in 2006 that amount is expected to almost double to around Kč 150 million.

 

“The more European money a research institute applies for, the poorer it becomes,” said Petr Matějů, the president of the Institute for Social and Economic Analyses. He added that the money research institutes spend on VAT from their own resources would be better used for covering institutional expenses. As a result, researchers become more reluctant to apply for further European financing, he said.

 

The ODS’ Bartoš has been vocal in support of the ISEA’s proposal. “We want the state to be more involved in research, and if the government can’t support this from the public budget, it should at least help researchers get more money from European funds,” he said.

 

The basic idea has some bipartisan support. “We’re preparing a solution for the situation; we will either support the idea of co-financing the research projects or we will propose a new amendment as soon as possible,” said Aleš Michl, adviser to Deputy Prime Minister for Economic Affairs Jiří Havel, a member of the ruling Social Democrats (ČSSD).

 

By 2010, every member state of the EU will be obliged to spend 3 percent of its gross domestic product (GDP) on research. Currently, the Czech Republic spends only around 0.6 percent of its GDP on research (see “CR is regional leader in FDI, but slacker in R&D,” CBW, April 3, 2006).

 

“Refunding the VAT researchers pay isn’t a loss for the national budget,” said Simona Weidnerová, managing director of the ISEA and initiator of the amendment. “If we don’t have this burden of paying VAT, we can apply for more European financing and more money will come into the country. If more money comes, researchers will get better salaries and will pay higher taxes, so in the end the government wins twice”, she said.

 

 

“We can’t abolish the legal duties of the Czech law on VAT in the case of these grants,” said Ministry of Finance spokeswoman Petra Krainová. “The acquisitiona of products and services in this country includes VAT for everyone,” she said.

 

Still, Bartoš remains confident. “All the political parties say that R&D is their priority. Now we can see if that’s true or if it’s only political rhetoric,” he said.

 

If the amendment is accepted, ISEA experts estimate it might impact upon more than 60,000 Czech public researchers. In 2005, 63 public and private universities were obliged by law to develop research activities in the Czech Republic.