Sejm moves to levy value-added tax on food products
As early as this week the Sejm could vote on the final version of a bill that will introduce no later than July value-added tax (VAT) on unprocessed farm products.
Following an initial vote on the initiative two weeks ago, a joint commission representing the Sejm's Public Finance and Agriculture committees has been hammering out a final version of the bill. In that first round of voting, all political parties supported the plan to levy the VAT tax on unprocessed farm products such as fish, honey, fruits and farm animals.
The law would put Polish tax laws in line with European Union (EU) regulations. It would also allow farmers to claim deductions coming from VAT taxes they have already paid on purchases of supplies or other goods.
While the commission is now haggling over final details of the new law, deputies are confident that the next version of the bill would make it back to Parliament for a second round of voting by the end of this week.
"The commission is working at an express tempo," said Jan Wyrowinski, a Freedom Union (UW) deputy from Torun.
Long in the making, the main sticking point to final passage of the bill is the initial rate of the tax, Wyrowinski said. Fearing fueling inflation and causing turbulence in the agriculture sector, some deputies want the tax rate to be set at 0%. 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 one used in the EU, opponents are pushing for an initial 3% rate. At present, the EU levies unprocessed farm products 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.
"That's the direction we are moving in," Wyrowinski said.
In addition, the Finance Ministry was reported last week as saying that a 0% tax rate would deprive the national budget of zl. 1.5 billion ($366 million) in income it would have received if a 3% rate was adopted.
One danger in the implementation of the higher 3% rate is that higher food prices could spur inflation, but officials working on the plan were unsure how much of an impact the tax would have.
"Adding 3% can influence the price of food in a certain sense," Wyrowinski said. "But it's difficult to foresee the outcome in a measurable way."
The agriculture community reacted positively last week to news of the VAT tax. With the introduction of the tax system, proponents argue that rural Poland will now 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 product. They can then deduct past VAT payments once they charge the tax on their own product.
"This is three years late in coming," said Kristian Warzecha, president of grain company PZZ Brzeg.
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 also have not been exempt from paying the tax on goods such as fuel, building supplies or fertilizer necessary for the day-to-day operation of the farm.
"We have been waiting for the introduction of VAT for a long time," said Jan Ciesielski, president of the Wielkopolska Gielda Rolno-Ogrodnicza (WGRO), a wholesale agriculture market in Poznan. "The (law) permits (getting back) the VAT markups on goods or products farmers buy, and that's a real benefit."
But not all farmers will be able to benefit from tax refunds. If a 3% levy is set by Parliament, farmers who sold less than zl. 80,000 in goods last year will pay a flat tax rate. While these farmers will not have to implement complicated VAT accounting systems, they also will not be able to write off expenses incurred during the course of business.
Not all of the approximately 100,000 farmers raking in sales of more than zl. 80,000 annually are expected to join the VAT regime. As it stands now, the law will allow larger producers to choose between the flat tax rate or the normal VAT scheme. However, such a choice may not be available until Poland joins the EU. Under current EU regulations, all farmers earning more than O10,000 are required to join the VAT system, Wyrowinski said.
While some portions of the ag sector welcomed the news, not everybody was pleased. With roughly 2 million small farms scattered across rural Poland, an analyst with the Adam Smith Research Centre said that the introduction of VAT could slow development of these burgeoning small businesses. Farmers will have to invest scarce time and capital to implement VAT accounting procedures, said Krzysztof Dzierzawski, senior researcher with Adam Smith Research Centre.
"Whether the rate is set at 0.5% or 100%, the agriculture sector in Poland is just not suited to servicing this tax," Dzierzawski said.
