Impact of the VAT Registration Threshold on Tax Revenue

This bachelor’s thesis examines the impact of increasing the VAT registration threshold from CZK 1 million to CZK 2 million, effective as of 1 January 2023, on the number of VAT payers and on VAT revenue in the Czech Republic. The aim of the thesis is to empirically assess whether the expectations associated with this legislative change, particularly concerns about a significant decline in the number of VAT payers and a reduction in VAT revenue, have materialised. The analysis is based on data from the Czech Financial Administration, the Ministry of Finance of the Czech Republic, the Czech National Bank, and macroeconomic statistics from the Czech Statistical Office and Eurostat. Nominal VAT revenue is adjusted for inflation using the Harmonised Index of Consumer Prices. The results show that the increase in the registration threshold did not lead to a substantial or persistent reduction in the number of VAT payers and had no negative impact on real VAT revenue. This outcome can be primarily explained by the high share of voluntary VAT registration and by the dominant influence of macroeconomic factors, particularly household consumption.