Disparate VAT decisions prompt Sejm rate reconsideration
As early as this week the Sejm might reconsider when value-added tax (VAT) will be levied on unprocessed agriculture goods and at what rate.
The reappearance of the VAT issue in the lower house of Parliament follows a surprise move by the Senate earlier this month, in which that body voted to introduce the tax to the ag sector at an initial 3% rate. This move contrasted with an earlier vote in the Sejm following months of debate, which ushered in VAT on unprocessed farm products such as fish, honey, fruits and animals at a 0% rate. Given the change in the bill, the Sejm must now decide whether to follow the Senate's lead or stick to its 0% rate.
"It's high time we reached some decisions on the matter," said Jan Wyrowinski, a Freedom Union (UW) deputy from Torun.
With the Sejm set to reconvene June 28, the sticky issue of VAT in agriculture is not actually on the official agenda for reconsideration. However, the pressure is on the Sejm to move quickly so the tax can be made into law by late summer. "In the official agenda this point is missing," Wyrowinski said, but "it is very probable that the matter will be introduced into the Sejm's agenda."
The law would make Polish tax laws compliant with European Union (EU) regulations. It would also allow farmers to claim deductions from VAT taxes that they have already paid on purchases of supplies or other goods.
Originally slated to take place by July 3, the final passage of the bill was held up in the Sejm through much of the winter due to a disagreement over the initial rate of the tax. The fear of fueling inflation and causing turbulence in the agriculture sector led some deputies to insist on the 0% tax rate. This level would allow food producers to introduce the tax mechanisms without adding to the final price tag for food in the marketplace.
Arguing that a 0% rate will prolong the integration of the tax system with that used in the EU, the government and other deputies have been pushing for an initial 3% rate. At present, most EU countries levy unprocessed farm products with a 7% tax. If Poland wants to join the trade bloc by the end of 2002, it will have to have a similar tax rate in place by that time.
The failure to introduce the law has been a setback for many in the agriculture community. Proponents have argued that with the introduction of the tax system, rural Poland will be more easily integrated into the mainstream economy because it will be forced to account for its financial transactions. Businesses keep track of how much VAT they pay on goods to avoid being charged multiple times during the course of producing a commodity. They can then deduct past VAT payments once they charge the tax on their own product.
In particular, large food producers are eager to have a chance at getting VAT refunds. While up to now, farmers have not been required to register as VAT payers, they have also not been exempt from paying the tax on goods necessary for the day-to-day operation of their farms such as fuel, building supplies or fertilizer.
However, the ag community itself is divided over the initial rate at which the tax should be assessed. The national agriculture chamber is lobbying parliamentarians and President Aleksander Kwasniewski to stick to the initial 0% rate, arguing that consumers might not accept the 3% hike in food prices and that sales of farm goods might fall.
"The market has the final word," said Romuald Buczkowski, office director of the Wielkopolska agriculture chamber. "We are afraid that the market won't accept a 3% increase in prices."
For farmers, the preferred solution is for the government to finance the introduction of the tax. At a 0% rate, consumers will not bear the burden of higher food prices, and the government will finance the return of VAT paid out by farmers.
"Our agriculture needs support before entering the EU," Buczkowski said. "That's why we are opting for 0% because it would be a form of support in the pre-accession period."
However, that support could end up costing the government as much as zl. 1.3 billion ($300 million), according to Finance Ministry calculations. That type of help is something the government can't afford at this moment, according to Solidarity Election Action (AWS) Senator Jan Chodkowski.
A longtime supporter of the 0% rate, Chodkowski opted for the 3% rate when it came down to a final vote in the Senate earlier this month. "The budget can't handle introducing VAT at a 0% rate," Chodkowski said. "I voted for 3% so as to not delay inplementing VAT in agriculture."
While consumers could feel the burden in the form of higher food prices, the 3% rate at least gives farmers the chance to deduct VAT payments on purchases. "Fuel costs keep rising in Poland and farmers can't deduct these," Chodkowski said. "I thought the introduction of VAT would be a big help for farmers."
