Tax touch-up

Last week Finance Minister Zyta Gilowska said Poland cannot afford to cut tax rates from 19, 30 and 40 percent to 18 and 32 percent, as Law and Justice (PiS) promised in its election campaign. Instead, the government is focusing on other individual taxation issues.

"We are going to reduce labor costs through lowering pension premiums from 13 to 10 percent. We want to defrost tax rates and tax-free amounts," Minister Gilowska said. She also announced planned changes to the taxation system for company cars. "[The Ministry wants to] do away with the meshes in commercial cars and enable companies to deduct the whole VAT from the price of a purchased car." Under current legislation, commercial vehicles must have meshes, or cargo screens, between the rear seats and the trunk of a car to identify them as commercial vehicles.

The Ministry's priorities also include changes in the catalogue of expenses that can be deducted as costs. Currently, there are 60 items that cannot be written off against tax, and Gilowska plans to reduce this number. Small firms with turnover not exceeding EUR 35,000 (zł.132,000) will not have to use cash registers and their VAT returns will have to be turned in every quarter of the year, not every month. The Ministry also plans to liquidate the tax-card system.

The government also wants to crackdown on tax evaders with the creation of a strong financial police force that will prosecute dishonest taxpayers and combat the black market.

Cosmetic changes

Robert Gwiazdowski, from the Adam Smith Center, says that there is no overriding concept in the changes and instead of a dramatic reduction in labor costs, the Ministry is making many cosmetic changes: "We seem to be cleaning up the shack while it is collapsing," he says.

"Right now we are cleaning up the shack but we have lowered taxes by more than just 18 percent," responds Deputy Finance Minister Mirosław Barszcz. "Our projections show that we would need to lower the tax rates to some 16-17 percent to achieve what we have done by decreasing pension premiums and increasing the tax bands."

There are also doubts as to the legality of the new top personal tax rate of 50 percent. The amendment introducing the new rate for those earning more than zł.600,000 per year was accepted in 2004. The law was to enter force on January 1, 2005, but the Constitutional Tribunal suspended it. According to Minister Barszcz, the Attorney General is going to ask the Constitutional Tribunal to interpret last year's decision.

Zbigniew Chlebowski, who is responsible for finances in Civic Platform's (PO) shadow cabinet, is less than enthusiastic with the changes: "We were expecting a revolution in the system connected with the idea of 'a cheap state.' There are no cuts in public spending [and] some of the ideas are borrowed from PO."

The Ministry estimates the changes will cost zł.11 billion a year.