Economists welcome news of CIT cut
By Timothy Sifert and Daniel Tencer
Entrepreneurs and economists throughout the country have welcomed a proposal by Andrzej Raczko, the new finance minister, to lower the corporate income tax (CIT) rate from the current 27 percent to 19 percent next year, but they warn that the total effect of the move may not be as positive for small and medium sized enterprises as it will be for large, multinational companies.
Mateusz Szczurek, senior economist at ING Bank, said the tax decrease would not produce a macroeconomic sea change, but it would increase tax revenues from multinational companies that have made a practice of reporting the better part of their income from Polish operations in other countries with lower corporate tax rates. He added that, should the government put the tax relief into effect, at 19 percent its CIT would be lower than that of most western European countries.
However, he said, the benefits would not be too great, especially because this government, in general, doesn't seem to be on the path to fiscal discipline in drafting next year's budget.
Prime Minister Leszek Miller, whose cabinet is in almost complete agreement on the tax break, said that the new lower rate would stimulate capital spending, which would help to create new jobs. According to the prime minister, with the new lower corporate tax rate, Poland can expect GDP growth of 5 percent next year.
"Of course (the tax reduction is) positive from the point of view of GDP growth," said Maciej Reluga, an economist at Bank Zachodni WBK. But he noted that the "decrease would not apply to many small and medium-sized companies," as many companies in that sector pay personal income tax (PIT), changes to which are likely to be stalled for political reasons.
Raczko's proposals for the PIT would roll back the changes proposed by Grzegorz Kołodko, the former finance minister. Kołodko had proposed creating a new tax bracket of 17 percent, which would be applied to incomes of less than zł. 6,600 per year. Under Raczko's plan, individual taxpayers would continue to fall into three tax brackets - 19, 30 and 40 percent - but the initial tax-free amount would be raised from its present zł. 2,790 to zł. 3,168. The caps on personal income brackets would remain as they are, with zł. 37,024 being the top limit for the 19-percent bracket, up to zł. 74,048 taxed at 30 percent, and all income above that level taxed at 40 percent.
Prime Minister Miller noted last week that the introduction of a 19-percent corporate tax rate would force a delay in introducing the proposed flat-rate corporate and personal income tax to at least 2005. As a result, some political analysts have said that Miller's idea to lower the CIT is an attempt to put off implementation of the flat-rate tax - an idea that does not have widespread support within Miller's Democratic Left Alliance (SLD) party - while at the same time placating the demands of entrepreneurs and economists that the country's tax regime be reformed to provide a more hospitable environment for investment and capital spending.
At a press conference following a meeting of cabinet members last week, the new finance minister said that the budget projections presented to the government by the previous finance minister, Grzegorz Kołodko, which assumed a deficit of zł. 33.1 billion (E7.4 billion) for the next fiscal year, were open to changes.
Asked if his tax plan would increase the budget deficit, Raczko said that the issue had not been determined yet, and that it would depend on "a certain amount (of money) that could be signed over to the budget from the National Bank of Poland."
Raczko was referring to the recent debate over the use of the NBP's zł. 9-billion (E2.02-billion) reserve funds to close holes in the state budget. Earlier this year, Grzegorz Kołodko tried to convince the NBP to hand over the reserve funds, which were created as a side effect of marginal changes in currency exchange rates, to the State Treasury. The NBP has been resisting the move.
