Business groups press FinMin for VAT reform
The groups have called on the government to reduce penalties for firms that incorrectly report VAT. Fines of up to 300% are an onerous burden on business and are far higher than penalties in Western, or even Central, Europe, they said.
The Finance Ministry is currently discussing proposed legislation that would lower the VAT penalty to a maximum of 50% from the current 300%. But the ministry has not yet set a timetable for submitting the measures to Parliament. Accountants and others expect some type of change will be enacted by the end of the year, though.
"Almost three years after taking effect, the VAT regulations have proved that additional taxes for the mistakes of taxpayers are too high," the ministry says in its explanation accompanying the proposals to reform the system.
Currently, taxpayers who underclaim the VAT they receive ("output VAT") from finished products and services must pay the 22% VAT that is owed and are assessed a penalty equivalent to 100% of the VAT. And taxpayers who overclaim VAT they pay ("input VAT") for raw materials and supplies are assessed a penalty equivalent to 300% of the VAT.
The proposed legislation would reduce both rates to 50%. The proposals under discussion also say that if a taxpayer miscalculates the VAT rate, it may be corrected before tax officials step in. While local business leaders say the reductions are long overdue, they are calling for additional legislation to protect taxpayers.
The American Chamber of Commerce in Poland is lobbying the Finance Ministry to pass regulations providing that penalties will not be assessed in cases where the taxpayer has exercised "reasonable care," or did not deliberately miscalculate VAT.
"Honest mistakes shouldn't be punished," said Gary Stachlowski, tax partner with Arthur Andersen and co-chairman of AmCham's tax committee, which submitted a "white paper" to the ministry earlier this month. At press time, the ministry was still considering the proposal and had not issued a formal response.
In its published proposal, the committee argues that Poland's VAT penalty structure is significantly higher than most other European countries. Moreover, the paper states, tax authorities are encouraged to levy fines, as collectors are paid proportionally to the penalties they collect. But companies which make an honest mistake should not be subject to the same penalties as those which deliberately lie, Stachlowski said.
Stachlowski noted one case in which a large company was penalized for simply dropping a zero in the VAT it was supposed to pay. Instead of paying $20,000, the company paid $2,000, he said. For this, the company was hit with a $60,000 penalty.
Krzysztof Lipka, senior manager in the tax department at Deloitte & Touche, said one client of his was penalized because the VAT invoice was not properly registered by the issuer. "How can you do business if you have to check the proper registration of the supplier?" said Lipka, who is not on the AmCham tax committee. "You need to depend on good faith."
Most mistakes are technical errors anyway, noted Witold Michalek, president of the Business Centre Club, a pro-business lobbying group. Tax authorities should begin with the presumption of innocence, he said.
Even in countries where there is no such provision, tax authorities generally make allowances for honest mistakes, said Dennis Howarter, senior tax manager with Price Waterhouse and co-chair of AmCham's tax committee.
Most European Union (EU) countries accept "reasonable cause," or acting in good faith and/or voluntary disclosure as a basis for assessing no penalty or a reduced penalty.
Business leaders say reductions may help spur foreign investment in Poland.
"Compared with other European countries Poland has significantly higher penalty rates," said Robert Kaszlewicz, a spokesman for the Foreign Investors Chamber of Industry and Commerce.
Stachlowski argues Poland's restrictive policy could discourage foreign investors. "Some of our clients are considering lowering their investments in Poland because of this," Stachlowski said.
The Finance Ministry is currently discussing proposed legislation that would lower the VAT penalty to a maximum of 50% from the current 300%. But the ministry has not yet set a timetable for submitting the measures to Parliament. Accountants and others expect some type of change will be enacted by the end of the year, though.
"Almost three years after taking effect, the VAT regulations have proved that additional taxes for the mistakes of taxpayers are too high," the ministry says in its explanation accompanying the proposals to reform the system.
Currently, taxpayers who underclaim the VAT they receive ("output VAT") from finished products and services must pay the 22% VAT that is owed and are assessed a penalty equivalent to 100% of the VAT. And taxpayers who overclaim VAT they pay ("input VAT") for raw materials and supplies are assessed a penalty equivalent to 300% of the VAT.
The proposed legislation would reduce both rates to 50%. The proposals under discussion also say that if a taxpayer miscalculates the VAT rate, it may be corrected before tax officials step in. While local business leaders say the reductions are long overdue, they are calling for additional legislation to protect taxpayers.
The American Chamber of Commerce in Poland is lobbying the Finance Ministry to pass regulations providing that penalties will not be assessed in cases where the taxpayer has exercised "reasonable care," or did not deliberately miscalculate VAT.
"Honest mistakes shouldn't be punished," said Gary Stachlowski, tax partner with Arthur Andersen and co-chairman of AmCham's tax committee, which submitted a "white paper" to the ministry earlier this month. At press time, the ministry was still considering the proposal and had not issued a formal response.
In its published proposal, the committee argues that Poland's VAT penalty structure is significantly higher than most other European countries. Moreover, the paper states, tax authorities are encouraged to levy fines, as collectors are paid proportionally to the penalties they collect. But companies which make an honest mistake should not be subject to the same penalties as those which deliberately lie, Stachlowski said.
Stachlowski noted one case in which a large company was penalized for simply dropping a zero in the VAT it was supposed to pay. Instead of paying $20,000, the company paid $2,000, he said. For this, the company was hit with a $60,000 penalty.
Krzysztof Lipka, senior manager in the tax department at Deloitte & Touche, said one client of his was penalized because the VAT invoice was not properly registered by the issuer. "How can you do business if you have to check the proper registration of the supplier?" said Lipka, who is not on the AmCham tax committee. "You need to depend on good faith."
Most mistakes are technical errors anyway, noted Witold Michalek, president of the Business Centre Club, a pro-business lobbying group. Tax authorities should begin with the presumption of innocence, he said.
Even in countries where there is no such provision, tax authorities generally make allowances for honest mistakes, said Dennis Howarter, senior tax manager with Price Waterhouse and co-chair of AmCham's tax committee.
Most European Union (EU) countries accept "reasonable cause," or acting in good faith and/or voluntary disclosure as a basis for assessing no penalty or a reduced penalty.
Business leaders say reductions may help spur foreign investment in Poland.
"Compared with other European countries Poland has significantly higher penalty rates," said Robert Kaszlewicz, a spokesman for the Foreign Investors Chamber of Industry and Commerce.
Stachlowski argues Poland's restrictive policy could discourage foreign investors. "Some of our clients are considering lowering their investments in Poland because of this," Stachlowski said.
