Property tax hike in the pipeline

Starting from January next year, real-estate sellers may have to pay a 19-percent tax rate from the profit made on property sales. The Ministry of Finance has plans to withdraw from the existing 10 percent rate from property sales, and tax solely the margin, meaning the difference between the price for which a property was bought in the past and the current purchase price of the asset. The Ministry is also proposing that expenditures spent on any refurbishments that increased the value of the property can also be included as deductible costs.

The new proposal raised numerous objections among developers and investors. The Polish Association of Developers' view is that the Ministry introduced this new tax only to collect more money. The Association's president, Jacek Bielecki, claims that imposing the 19-percent tax will result in a lower number of properties on the market, and thus lower the number of flats. "This will also cause the increase of dwelling' prices on the second-hand market. We will all suffer losses in connection with this regulation."

The Ministry wants to use the new regulation as a tool to abolish the rule which says that as long as a property is sold five years after it was purchased the tax does not have to be paid. The Ministry argues that property owners simply hang on to their real estate. Indeed, when it comes to tax accounts for 2004, the income from property sales constituted 2.3 percent of all income of Poles, which are defined as "other sources."

The Ministry of Transport and Construction has thrown in its two cents, and it says that, just as now, people who spend income from property sales on the purchase of another property will be exempt from the tax.