Taxing at the top

According to the Ministry, the new definition of 'social housing' (both apartments and houses) as not larger than 350 sqm will come into effect in 2008, at the same time as the Sixth EU Directive enters force. However, the Ministry's proposal already reflects some of the suggestions made by Laszlo Kovacs, the EU Tax Commissioner, to Finance Minister Zyta Gilowska, in relation to Poland's recent veto of the EU's proposed changes to VAT rates. Kovacs said that Poland could define social housing as buildings with at least two apartments, or those whose construction would not exceed EUR 100,000 (around zł.380,000).

The Ministry's draft says that a 22-percent tax would still be levied on houses and apartments larger than 350 sqm. Smaller development units with balconies and terraces larger than 65 sqm, with a swimming pool, tennis courts or finishing works worth more than half of the apartment's or house's value could also be taxed with 22 percent VAT.

Although developers are satisfied with the new proposal, which would mean that the majority of development would be taxed at seven percent, the Finance Ministry doesn't sound very optimistic. "The definition of social housing given by Minister Polaczek is not the government's or the Finance Ministry's position. We treat this proposal as an invitation for a discussion and we are going to analyze it. We still have the seven-percent VAT on all housing and we don't have to hurry," says Deputy Finance Minister Mirosław Barszcz.

However, developers would like the government to push the plans through. Builders would like to know exactly what the government plans, because any VAT increase could cause serious volatility on the market.

Andrzej Wróbel