Taxing problem of social housing
In a year and a half apartment prices could grow a further 15 percent, warns the Confederation of Polish Employers (KPP), unless a new low VAT rate is applied to new housing. In accordance with Poland's EU accession treaty, the end of 2007 will see the expiry of the lower seven-percent VAT rate on the acquisition of new flats and renovation services.
"Without defining social policy towards residential construction we will not be able to apply the lowered VAT rate for new flats," says the president of KPP, Andrzej Malinowski. "Already today we have high flat prices. Another rise could result in a regression in the construction sector. Meanwhile, about 1.6 million families are waiting for flats."
There are two definitions of social housing. The Ministry of Finance is in favor of the price criterion put forward by the EU Commissioner on tax issues, Laszlo Kovacs. He suggested that apartments worth less than R100,000 (zł.392,000) should be classified as social housing. However, according to KPP, this could limit the range of social housing due to spiraling flat prices.
KPP supports the Ministry of Infrastructure's idea, that all dwellings up to 350 sqm in area should be classified as social, which would apply to virtually all the housing in the country. Such a definition would be similar to the regulations in Italy, where any form of housing construction, including villas, up to 300 sqm is considered social, provided the interior does not contain luxury furnishings. This is not unique in the EU as, for example, Great Britain has zero VAT on construction, in Spain the rate is four percent, in Belgium six, in France 5.5, and in Luxembourg only three percent.
KPP claims that due to its vital role in society, social housing should not be an area which should interest the tax office. Furthermore, the Ministry of Finance's proposition might result in the building of sub-standard flats. Architecture and design might also suffer as developers and construction companies will only build within the cost that will entitle them to the low tax rate.
"This dispute between the ministries is delaying the implementation of the changes in the VAT bill and is putting investors in a difficult situation," says Malinowski.
He points out that already taxes constitute 40 percent of the price of one sqm. KPP stresses that on the one hand demand is "pumped up" due to mortgages, and on the other hand supply is being curbed. If this situation continues, he warns, the construction market as a whole might collapse.
