Asset returns: Paper fetishism or sign of future tax policies
Every so often politicians, in their infinite wisdom, decide that we do not have enough bureaucracy and tax forms, and decide to assist our profession by introducing something new. As regular readers will know, this column prefers not to comment on draft laws, as they have a nasty habit of changing between when the column is published and the law comes into force. But my colleague Filip Switala brought the following to my attention, and I thought it a good indication of the way some people think, which has implications for the whole of the Polish economy.
Certain parliamentarians are trying to introduce a new law requiring taxpayers to complete an "asset return" in addition to a tax return. Among the signatories of the draft law are socialist and peasant party members, and several presidential candidates (although none with more than a handful of votes according to the latest opinion polls).
According to the draft, both permanent and temporary residents of Poland (including us Johnny Foreigners) will be required to declare the value of their Poland-based assets. The declaration would cover all gross assets and include, among others: addresses and dates of the acquisition or construction of immovables and buildings, data regarding vehicles, nominal value of shares, the amount of savings and the assessed value of remaining assets. Married couples may declare their assets together.
There are some exemptions, such as people whose gross assets do not exceed zl. 25,000 (zl. 50,000 if married). If the estimated value of gross assets does not exceed zl. 200, 000 (zl. 400,000 if married), you just have to submit a simple declaration that states your assets are under this limit. In practice, all Polish inhabitants who have a house (or larger apartment) in Warsaw would be required to complete the declaration. The valuation of assets should be carried out by the taxpayer as of the day of the submission of the return, according to the average market prices.
Let's think for a moment about why I'd need to tell the tax office everything I own. Either they think they need another way to work out if someone is cheating on their income tax, or they are thinking of using this information to assess some kind of wealth tax.
The signatories of the draft argue that the proposed law is in line with European legislation. A return of assets is common in some European Union (EU) countries, and so its introduction in Poland is necessary to adapt the legal system to contemporary European standards. Now, I don't want to stray into territory usually covered by Marek Matraszek's "Government Watch" column, but if you compare the list of promoters of this bill with the list of not-exactly-the-strongest promoters of Poland joining the EU, there appears to be some correlation.
Is this some fiendish double bluff whereby opponents of the EU introduce a law they don't believe in to try and discredit joining the EU? Surely not.
Asset returns are required in France, Spain, the Netherlands and Luxembourg but in all these countries the asset return is necessary to assess the wealth tax, which is a separate tax. There is no such requirement in the U.K., Italy or Germany. Indeed, the asset return was recently deemed illegal and prohibited by the German Constitutional Court.
So if we are introducing something that is used to assess a wealth tax, is this the first step on the long road to the introduction of such a tax in Poland? In a country where less than 1% of taxpayers pay the highest rate of tax, the political costs may seem small in comparison to the prospect of raising more money. Perhaps the draft signatories think the law would not cost that many votes "millionaires" are unlikely to vote for the Polish Peasants Party (PSL) after all.
But if the argument that taxes need to be lower seems to be a generally accepted policy goal, this is surely moving in the opposite direction.
The signatories' second argument is that the asset return may help in the assessment of income tax. According to them, the tax authorities could cross reference income tax declarations (PIT) and the asset return and compare income streams and the accumulated wealth of the individual. That way they could reconcile the two, and any increase in the value of assets that was not accounted for in the income tax return would allow them to find out who was keeping their income secret. They appear to believe that a person who is non-declaring or under-declaring their income would still declare the proper value of their assets, which is interesting. I don't know what would motivate someone to be more honest on the asset return than on the income tax return.
One thing that I find worrying is the security of the information. The signatories do not explain how the data accumulated in the tax offices will be protected from breaches of security.
Ombudsmen have already protested against the draft, and it will be interesting to see how this one evolves. But in the meantime, keep this draft law in mind if you plan to buy a big house in Poland and you've never had any taxable income here.
