Poland's construction industry wants the government to reopen negotiations with the European Union (EU) to obtain a transition period for increases in sales tax on construction materials and services. The tax hikes would boost construction costs, stifle demand and deepen the problems of developers and contractors, industry representatives said.
Poland's position on taxation, negotiated in March this year, would mean a jump in sales tax on all construction services, materials and finished products from the current 7% to 22% once Poland joins the EU on Jan. 1, 2004. Housing prices would also rise accordingly, construction professionals said.
"We want the government to hold its own and negotiate 7% taxes, to do so quickly and keep the public informed," said Stefan Bachman, the director of the Construction Chamber of Industry and Commerce. "We have to build homes at low prices. Demand is high - we need some 1.6 million homes, but the buying power of the population is very small. We don't want an artificial price increase."
Unless Poland obtains a transition period, the tax increases would be detrimental to construction firms, which have taken a beating on the stock market due to growing liquidity problems, analysts said.
"Bankruptcy risk in this sector is on the increase," said Marek Majewski, an analyst at Powszechna Kasa Osczźdności Bank Polski (PKO BP) brokerage. "(Construction firms') recent results confirm the declining condition of companies in the sector. This growing risk means that it is getting harder for (them) to obtain credit from banks, which may well prolong their decline into next year."
According to Bachman, the tariff increase would also impact producers and retailers of construction materials since these are taxed at rates lower than the 22% rate, in EU countries.
"Companies will be able to make individual orders at tax levels that apply in the country of sale," Bachman said. "Why should they pay more here when they can just open a catalog and order from abroad?"
Jan Truszczyński, Poland's chief EU negotiator, declared this month that the government would reopen tax negotiations, but has announced no date for the talks to begin.
"We have taken into account the difficult situation of the Polish construction industry and have completed the conceptual side and the justification for applying for a transition period," said Ewa Haczyk, the spokeswoman for the Committee for European Integration (UKIE). "Poland is now waiting for the right time to file the application."
A source close to the negotiations said that Poland must time its request carefully or risk a rejection from the European Commission, the EU's executive arm, which is under pressure to prevent delays as the accession process comes to a close.
"It must be at a time when the EC has no renegotiation applications from other candidates under consideration," the source said. "The best time will be after the European Council meeting on direct subsidies on Oct. 24."
