Taxation without confirmation

By Aleksander Nowacki

Investors and brokers say that the complicated procedures involved in the calculation of a new capital gains tax set to come into force as of next year are likely to lead to a drop in turnover. The tax may spell disaster for the Warsaw Stock Exchange - but only if its introduction next year proves to be possible in the first place.

Maria Dobrowolska, president of the Chamber of Brokerage Houses, very much doubts that it will.

"If I, as the president of a body grouping potential payers of the tax, have not yet received any information on the details of its construction, then I don't see how it's feasible," she said. Pointing out the complexity of the software necessary to process the tax data, she said that it is already too late to initiate required changes to IT systems.

However, it is not clear whether brokerage houses or individual investors will file to the tax office. One possibility is that individual investors will have to deal directly with the authorities on all issues related to the tax.

"If you think that an individual, who can finalize up to hundreds of deals a month, will then go to the tax office with all the necessary data...well, I just don't know what world you live in," said Jarosław Dominiak, president of the Individual Investors Association.

Barely able to contain his fury at the proposed tax, Dominiak listed all the ways in which the Finance Ministry has not lived up to its promises.

One of the points of fiscal reform, he stated, was to simplify the tax system. How that objective has been approached is best illustrated by the rules of joint taxation of spouses when one of them is liable for the capital gains tax. Although the tax is paid at a flat 19-percent rate, for the purposes of determining the income tax bracket, it is included as part of the total income earned by the family, who will then pay the non-capital gains part of their taxes at a higher rate, even if that remaining part of the income alone falls under a lower tax bracket.

"See how simple that is?" Dominiak asked, reverting to sarcasm. "It fringes on double taxation."

He added that investors had been assured by the Finance Ministry that they would know of any plans to introduce the tax 18 months in advance. It is now clear that the ministry is planning to go ahead with the tax as of January 1 of next year, although it is not known how it will be calculated nor who will be responsible for declaring it to the tax authorities.

What seems to upset Dominiak the most is the lack of consultation with stock exchange professionals. That, again, is what the ministry had promised to do with the full knowledge of how fragile and sensitive the country's stock exchange is.

At the beginning of the year all those connected with the stock exchange, from investors to brokers, formed an alliance to work out the basic conditions the tax should fulfill. The results of their analyses have been completely ignored by the ministry, Dominiak said.

"It's sad to see the way people with bags of experience and authority are just ignored, completely and utterly ignored," he said. "The people in charge of the decision-making process have absolutely no idea what they are talking about."

Dobrowolska is, however, less pessimistic about the level of competence to be found in Finance Ministry officials.

"I'm an entrepreneur," she said. "I calculate potential costs, feasibility and costs. In this case, I'm sure that, if someone at the ministry sits down to look at these costs, they won't decide to go through with the tax. My only fear is that, amidst all the hard work they have to do, no one will find the time to do the analysis."