Capital gains could put cap on investments
Many market watchers say the new tax further burdens Poland's fledgling capital market.
Under the new tax, any company or business that holds government bonds issued after Jan. 1, 1989, or shares in companies quoted on the Warsaw Stock Exchange will be taxed on any gains made when selling the securities.
The move ends a two-year preferential tax for corporations investing in Warsaw's exchange. Personal accounts will continue to qualify for the zero-tax treatment on gains until the end of this year.
The corporate tax on capital gains should be delayed for one or two years, said Cezary Iwanski, analyst at Bank Pekao brokerage house.
While the tax might encourage longer term investments, it discourages short-term investments, Iwanski said.
"In our opinion, it's not good," he said. "It makes the exchange less attractive."
Iwanski said he saw a direct correlation between the end of the preferential tax on capital gains for corporations and the large supply of shares that typified the exchange in November and December. Companies were selling shares cheaply toward year's end, then buying them back at a higher price in the new year. Reduced gains in the new year reduces investors eventual tax burden, he said.
That could explain the more than 16% increase of the exchange's WIG index during the first two weeks of the year. Trading volume also has risen 39% during the same period.
"The tax obviously has to have some effects," said Jack Saffell, a consultant at accounting firm Coopers & Lybrand, adding that a drop of interest in bonds could be expected.
The tax change brings up an issue that very much haunted legislators in 1995. Early last year, a turnover, or sales, tax of 0.2% was in force, but Finance Minister Grzegorz Kolodko later suspended the tax after analysts concluded it was hampering the stock market. Speculation about the removal of preferential capital gains tax on personal accounts also slowed down the market in June, analysts said.
The issue of taxing capital gains "is more sensitive now than before," said Leslaw Paga, managing partner at Deloitte & Touche. Introducing capital gains tax in Poland is "a long story," he said. With the general tax system in constant flux, legislators continue to play with different ways of raising taxes, he said.
When legislators saw that a lot of money could be made on the exchange, they thought that taxing capital gains could help pay for other parts of the economy that needed financing like social welfare, he said. But when the boom ended on the exchange, lawmakers stopped advocating tax on capital gains, Paga said. The last example of this was the turnover tax introduced by the Finance Ministry, he said. Some say that tax on capital tax will have a negative effect when the market is in a downtrend. In that case, "taxes are not the best solution," said Pawel Wielgomas, analyst at Polski Bank Rozwoju brokerage house.
Under the new tax, any company or business that holds government bonds issued after Jan. 1, 1989, or shares in companies quoted on the Warsaw Stock Exchange will be taxed on any gains made when selling the securities.
The move ends a two-year preferential tax for corporations investing in Warsaw's exchange. Personal accounts will continue to qualify for the zero-tax treatment on gains until the end of this year.
The corporate tax on capital gains should be delayed for one or two years, said Cezary Iwanski, analyst at Bank Pekao brokerage house.
While the tax might encourage longer term investments, it discourages short-term investments, Iwanski said.
"In our opinion, it's not good," he said. "It makes the exchange less attractive."
Iwanski said he saw a direct correlation between the end of the preferential tax on capital gains for corporations and the large supply of shares that typified the exchange in November and December. Companies were selling shares cheaply toward year's end, then buying them back at a higher price in the new year. Reduced gains in the new year reduces investors eventual tax burden, he said.
That could explain the more than 16% increase of the exchange's WIG index during the first two weeks of the year. Trading volume also has risen 39% during the same period.
"The tax obviously has to have some effects," said Jack Saffell, a consultant at accounting firm Coopers & Lybrand, adding that a drop of interest in bonds could be expected.
The tax change brings up an issue that very much haunted legislators in 1995. Early last year, a turnover, or sales, tax of 0.2% was in force, but Finance Minister Grzegorz Kolodko later suspended the tax after analysts concluded it was hampering the stock market. Speculation about the removal of preferential capital gains tax on personal accounts also slowed down the market in June, analysts said.
The issue of taxing capital gains "is more sensitive now than before," said Leslaw Paga, managing partner at Deloitte & Touche. Introducing capital gains tax in Poland is "a long story," he said. With the general tax system in constant flux, legislators continue to play with different ways of raising taxes, he said.
When legislators saw that a lot of money could be made on the exchange, they thought that taxing capital gains could help pay for other parts of the economy that needed financing like social welfare, he said. But when the boom ended on the exchange, lawmakers stopped advocating tax on capital gains, Paga said. The last example of this was the turnover tax introduced by the Finance Ministry, he said. Some say that tax on capital tax will have a negative effect when the market is in a downtrend. In that case, "taxes are not the best solution," said Pawel Wielgomas, analyst at Polski Bank Rozwoju brokerage house.
