Competitive rates, complicated system
Wojciech Sztuba: This is a very sad ranking, but one must be aware that it evaluates our place according to very specific criteria, such as an assessment of how "user friendly" Polish tax system is. It says a lot about efforts and actions one must undertake in order to handle tax obligations which, I admit, are enormous. On the other hand, it says nothing about the competitiveness of tax rates in Poland. In that respect, we are certainly in a much better position.
In my view, the Polish economy is fairly competitive far as the height of tax burdens is concerned, but not the most friendly when it comes to the tax system itself and its application. The year 2004 saw a radical cut in the income tax rate in Poland as a reaction to strong tax competition from neighbors such as Slovakia and the Baltic states. The corporate income tax was reduced from 27 to 19 percent, and the rate for individual entrepreneurs dropped from 40 to 19 percent. That was a very sharp cut, but it almost immediately had a positive impact on a number of economic factors, including a reduction of black market, a reversal of profit transfer streams and general growth of the domestic economy.
Let me stress that if you take into account its overall investment attractiveness, Poland ranks quite high. A number of reports show that taxes rank sixth or seventh among the decisive criteria for making investments. Poland also has many non-tax advantages, like competitive labor costs, a relatively high level of education, good language abilities among young people and - what sometimes counts most - the size of the Polish market. These all make Poland a tasty morsel and a profitable target for foreign investors.
And what about the tax system as a whole?
The friendliness of the system is indeed an issue and we can easily spot the influence of the old [communist] times in the way relations between the taxpayer and the state are shaped both at the legislative and executive levels. On one hand, the tax law itself contains dangerous pitfalls and, on the other hand, financial officials often apply it in an aggressive manner. While the taxpayer is subject to a number of strict requirements, their rights are riddled with a number of restrictions. For example, we have the option to make tax-free donations between family members, but if we do not apply for the relief within a clearly specified period of time and in the prescribed written form, we lose the exemption right irretrievably.
Besides, taxpayers must devote lots of time in order to report data, file statements and pay advances for tax liabilities several times a year. Such a restrictive range of duties is seldom seen in other countries. Another problem is that errors can be more painful in Poland, since fines can be high by European standards.
We often hear how difficult it is to introduce any reforms to the tax system. Why is that?
Very often the problem is that even a well-designed reform from the Ministry of Finance is massacred by parliamentary readings and the amendments to it take on a life of their own. At the end of the day, the legal act which enters into force requires immediate amendments and these aren't made. Hundreds of interpretations are published to guess what the intention behind the law was.
But again, although the tax system is certainly not the simplest one, I would not exaggerate by demonizing the problem. Taxes are definitely not a deal-breaker to doing business in Poland.
