Import tax looks set to blight publishers' bottom line

The ongoing slump in the advertising market may not be the only nightmare facing press publishers next year.

With pressure mounting within the cash-strapped Democratic Left Alliance (SLD)-led government to impose up to a 6% tax on all imports, publishers that purchase materials from abroad, such as paper, may soon find themselves facing steep increases in production costs - price hikes they may be forced to pass on to the customer. The tax, strongly backed by coalition partner the Peasants Party (PSL), means that many publishers will be required to save money through smaller formats and fewer promotions. Product launches could also be delayed or canceled.

"We're doing what most publishers are doing now, we're waiting," said Tomasz Zięba, general director of Vipress, publisher of Playboy and Voyage magazines. "We are not going to take steps that would cost us dearly. We planned to launch a new magazine, but we decided to freeze the project and analyze it again next January. The ad market won't improve, but we may be able to learn more about the government's plans by that time."

Vipress, like the majority of magazine publishers, buys its paper from countries such as Finland where the quality is better suited to multi-color printing. "If an import tax is introduced it will increase our costs," said Florian Fels, general director of Axel Springer Polska, the publisher of Newsweek and Profit, last week. "We are really concerned about it. It would hurt us. Paper costs account for some 25% of our total expenses. While we will save some money next year because the price of paper is generally going down, it's not decreasing at a pace of 7%. So we could offset (the cost increase) a little bit, but (the tax is still) a problem."

But while most publishers are awaiting the outcome of the government's debate on whether to impose the tax, Hachette Polska, the publisher of Elle magazine, has gone ahead with plans to relaunch Marie Claire. The title, previously published by MC Press, folded in December 1999 due to poor sales. Jan Dybczyński, president of Hachette Filipacchi Polska, cautioned, however, that given the uncertain world economy, the company's plans to reintroduce the magazine could change.

"We want to launch Marie Claire in the first quarter of 2002, though not in January," he said. "We are now analyzing the magazine's trial issue. We know how bad the situation is in Poland and if an import tax is introduced, the price of paper will go up, but we've made a decision."

Until last week, SLD had shunned the idea of including a tax on imports in its 2002 budget draft. PSL, meanwhile, has pushed for the tax since campaigning vehemently for it in the fall elections. According to political observers, SLD may in the end agree to the tax to appease its coalition partner. "It may also go for it due to problems with public finances," said Krzysztof Dzierżawski, an adviser at the Adam Smith Center, a Warsaw-based think tank. "Such a tax would make a difference as we are talking about zł. 10 billion-zł. 12 billion ($2.5 billion-$3 billion in possible revenue)."

Józef Gruszka, a PSL deputy and vice chairman of Sejm's public finance committee, said that his party was still in talks with the SLD about introducing the tax. "If we can't make it by the end of February when the budget debate must end, there is no reason why we can't continue working on the import tax and pass it in March," he said.

According to the PSL's plan, the import tax would be imposed for two years instead of the previously proposed three. "If we join the European Union (UE) in 2004 we can't keep this tax that long," Gruszka said. "The tax's final level will result from our talks with the coalition partners (SLD-UP). It may amount to 5-6% in the first year, and from 2-3% in the second year."

PSL's persistence in promoting the tax stems from its conviction that it would help Polish exporters, whose production is based on domestically made raw materials. "I've heard opinions that such a tax would hurt some exporters (those who depend on imported materials), but according to our plans, those who will be able to prove that they import to produce will be able to apply for a tax return," Gruszka said.

But according to the Adam Smith Center's Dzierżawski, the import tax will undermine exporters rather than support them. "We can only import amounts that we are able to sell abroad, so if imports decrease, export volumes will also go down." Dzierżawski said. "Such a tax is an artificial impediment to foreign trade and it always ends badly."

The second and the third readings of the budget draft are scheduled for mid-February and all the other drafts bills accompanying the budget proposal have to be passed by the end of this year.

Anna Kocinska