President fails with VAT attack
The issue first cropped up when Poland joined the European Union on May 1, 2004. Value-added tax (VAT) on construction materials jumped from seven to 22 percent, as a result of requirements in the EU's sixth directive.
At that time, Prime Minister Leszek Miller and his government promised to compensate investors for the rise. However, the project fell by the wayside for a year and was dug out this month by Sejm Speaker Włodzimierz Cimoszewicz.
The bill assumed that anyone who builds or repairs a house or flat gets back the difference between the 22 percent and the seven percent rates of VAT on construction materials between May 1, 2004 and December 31, 2007, provided they kept the invoices.
Entrepreneurs from the construction sector were ready to fight fiercely for the bill as they recorded a dramatic decrease in the sales of construction materials after the VAT rise. They argued that the bulk of production moved to the black market.
At the same time economists, including the Finance Minister Mirosław Gronicki, pointed to the threat the bill poses to the state's budget. According to the Finance Ministry, the VAT compensation could cost the budget zł.3-18 billion in the years 2006-2008. Gronicki also argued that the bill would be only advantageous for wealthy investors, who are not in serious need of state aid. Besides, he stressed, in order to pay the reimbursement of VAT to millions of investments, the state would have to reconstruct and expand the Treasury's infrastructure.
Convinced by these arguments, President Aleksander Kwaniewski vetoed the bill, which was directed back to the Sejm. The situation seemed hopeless for investors, as Cimoszewicz announced he was not going to call another Sejm session during which the presidential veto could be rejected. "Keeping promises is a matter of honor and the reliability of the government," said the president of the National Chamber of Commerce, Andrzej Arendarski. "I am very sorry that the President did not respect those promises," he told Gazeta Wyborcza.
Unexpectedly, and most probably due to entrepreneurial pressure, Cimoszewicz called a session of the Sejm. With support from all sides of the house, the Sejm unanimously overturned Kwasniewski's veto. Now the Ministry of Finance warns that in order to rescue the budget it will include in next year's fiscal planning a proposal to increase fuel excise by zł.0.25 per liter. Also, as Gazeta Wyborcza says, according to analysts from the American investment bank JP Morgan, the costs of enacting the controversial bill could delay Poland's entering the eurozone. Arendarski says that the Ministry's estimations concerning the bill costs are exaggerated: "We believe that launching these new regulations will cost not more than zł.1 billion and the subsequent profits will be incomparably bigger."
