The cost of 'necessary luxuries' in the enlarged European Union
There is a price to pay for everything. The fact that there is a higher price to pay for luxury, defined in Webster's Unabridged Dictionary as 'indulgence in comforts and pleasures in addition to those necessary for a reasonable standard of well being', seems blindingly obvious. Why is it, though, that material objects and services conducive to sumptuous living are so much more expensive than your bread and butter?
Firstly, it is the producers who set a high price benchmark, because they know they can get away with charging zł.2400 (€500) for 30ml of facial cream with diamond powder. When it comes to luxury, those who are willing to spend the money don't really need the product but can afford it. Secondly, it is society that sets the trends - what's in and what's out. In a world where fashion rules, material objects in fabric, plastic, paper and metal form have become a necessary luxury. The pricing, therefore, is fixed accordingly.
Thirdly, it is the Tax Man who has ensured he gets a piece of the pie. Historically, tax has been levied on luxury-type goods and services or such that fall within state monopoly (e.g. energy) and is normally referred to as excise duty or excise tax, not to be confused with special 'luxury' taxes existing in countries such as Austria.
Currently, the scope of the application of excise taxes is slightly greater. It is set in EU legislation as well as in the new Polish Excise Duty Act, which will fully come into force on May 1, 2004, though some of its provisions already became effective on March 1, 2004. What are Polish consumers to expect in this regard? The answer is a general rise in the price of certain excisable goods (e.g. tobacco products, fuel, etc.) as well as new opportunities regarding their holding, movement and monitoring.
The new Polish legislation is based primarily on Council Directive 92/12/EEC of February 25, 1992. Only certain excisable goods are subject to EU regulation, including mineral oils, natural gas and car fuel, alcohol and alcoholic beverages, manufactured tobacco and tobacco products, electricity and coal. The EU sets minimal scope and duty rate requirements with respect to these items. As regards other excisable products, such as cars and cosmetics, Poland is entitled to determine its own rules, provided these do not pose any restrictions on free trade within the EU.
On cigarette taxation, for instance, the EU currently imposes a minimum excise burden of €60 (zł.290) per thousand cigarettes, which will rise to €64 (zł.309) by July 1, 2006. There is also a minimum incidence for excise taxation of 57 percent of the retail selling price of the Most Popular Price Category (MPPC), which differs across member states. Another requirement for the national (e.g. Polish) excise is to include an element of specific, as well as ad valorem tax, no less than five percent and no more than 55 percent, respectively, of the total tax on the MPPC.
For those of you who happen to work in the tobacco industry or who are simply good with numbers, it should be obvious that the implementation of the above EU minimum requirements could easily force the majority of Polish smokers into financial insolvency. Fortunately for them, and for the international investors in Poland's lucrative tobacco industry, the EU has granted Poland an exemption until 2009.
Where no exemptions or other transitional arrangements apply, the excise duty will generally be collected by the customs authorities at the border at import/export. Excise duty on Polish goods will normally become payable when they are produced, although a number of exceptions will apply. Polish tax payers should remember that excise duty will also be due on excisable goods designated exclusively for marketing/ promotional purposes or those produced for private use.
The newly introduced rules (from March 1, 2004) on tax warehousing arrangements are an exception to the above general requirements. They allow traders to postpone the payment of excise duties on goods held in an excise tax warehouse. They also make possible the movement of products between tax warehouses under the special duty suspension procedure.
The Polish Excise Duty Act poses certain limitations on the use of excise tax warehouses. For example, in order to be classified as such, the excise tax warehouse can be used to store only certain excisable goods, namely those which are subject to EU regulation (alcohol, tobacco, fuel, etc.). Moreover, not everyone would be able to set up and operate a tax warehouse, only authorized warehouse-keepers, defined as businesses which "carry out at least one type of activity related to the production, processing or holding of qualifying excisable goods."
Within the EU, excisable goods can be moved under the special duty suspension procedure. This requires the lodging of a guarantee to cover the risks inherent in the movement of goods as well as the use of administrative accompanying documents (AAD). In accordance with EU legislation, such trading in qualifying excisable goods under the duty suspension regime can be carried out by registered and non-registered traders. The latter are required to obtain permits from the competent member state customs body and to lodge a respective guarantee each time excisable goods are dispatched and transported across the border.
New excise and customs duties, new VAT rules, new borders and a whole new business reality within a new common European market trading across Polish borders will change literally overnight. There is not much time left till May 1, 2004 to get abreast with the main legislative changes affecting your businesses. Hurry up!
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
Firstly, it is the producers who set a high price benchmark, because they know they can get away with charging zł.2400 (€500) for 30ml of facial cream with diamond powder. When it comes to luxury, those who are willing to spend the money don't really need the product but can afford it. Secondly, it is society that sets the trends - what's in and what's out. In a world where fashion rules, material objects in fabric, plastic, paper and metal form have become a necessary luxury. The pricing, therefore, is fixed accordingly.
Thirdly, it is the Tax Man who has ensured he gets a piece of the pie. Historically, tax has been levied on luxury-type goods and services or such that fall within state monopoly (e.g. energy) and is normally referred to as excise duty or excise tax, not to be confused with special 'luxury' taxes existing in countries such as Austria.
Currently, the scope of the application of excise taxes is slightly greater. It is set in EU legislation as well as in the new Polish Excise Duty Act, which will fully come into force on May 1, 2004, though some of its provisions already became effective on March 1, 2004. What are Polish consumers to expect in this regard? The answer is a general rise in the price of certain excisable goods (e.g. tobacco products, fuel, etc.) as well as new opportunities regarding their holding, movement and monitoring.
The new Polish legislation is based primarily on Council Directive 92/12/EEC of February 25, 1992. Only certain excisable goods are subject to EU regulation, including mineral oils, natural gas and car fuel, alcohol and alcoholic beverages, manufactured tobacco and tobacco products, electricity and coal. The EU sets minimal scope and duty rate requirements with respect to these items. As regards other excisable products, such as cars and cosmetics, Poland is entitled to determine its own rules, provided these do not pose any restrictions on free trade within the EU.
On cigarette taxation, for instance, the EU currently imposes a minimum excise burden of €60 (zł.290) per thousand cigarettes, which will rise to €64 (zł.309) by July 1, 2006. There is also a minimum incidence for excise taxation of 57 percent of the retail selling price of the Most Popular Price Category (MPPC), which differs across member states. Another requirement for the national (e.g. Polish) excise is to include an element of specific, as well as ad valorem tax, no less than five percent and no more than 55 percent, respectively, of the total tax on the MPPC.
For those of you who happen to work in the tobacco industry or who are simply good with numbers, it should be obvious that the implementation of the above EU minimum requirements could easily force the majority of Polish smokers into financial insolvency. Fortunately for them, and for the international investors in Poland's lucrative tobacco industry, the EU has granted Poland an exemption until 2009.
Where no exemptions or other transitional arrangements apply, the excise duty will generally be collected by the customs authorities at the border at import/export. Excise duty on Polish goods will normally become payable when they are produced, although a number of exceptions will apply. Polish tax payers should remember that excise duty will also be due on excisable goods designated exclusively for marketing/ promotional purposes or those produced for private use.
The newly introduced rules (from March 1, 2004) on tax warehousing arrangements are an exception to the above general requirements. They allow traders to postpone the payment of excise duties on goods held in an excise tax warehouse. They also make possible the movement of products between tax warehouses under the special duty suspension procedure.
The Polish Excise Duty Act poses certain limitations on the use of excise tax warehouses. For example, in order to be classified as such, the excise tax warehouse can be used to store only certain excisable goods, namely those which are subject to EU regulation (alcohol, tobacco, fuel, etc.). Moreover, not everyone would be able to set up and operate a tax warehouse, only authorized warehouse-keepers, defined as businesses which "carry out at least one type of activity related to the production, processing or holding of qualifying excisable goods."
Within the EU, excisable goods can be moved under the special duty suspension procedure. This requires the lodging of a guarantee to cover the risks inherent in the movement of goods as well as the use of administrative accompanying documents (AAD). In accordance with EU legislation, such trading in qualifying excisable goods under the duty suspension regime can be carried out by registered and non-registered traders. The latter are required to obtain permits from the competent member state customs body and to lodge a respective guarantee each time excisable goods are dispatched and transported across the border.
New excise and customs duties, new VAT rules, new borders and a whole new business reality within a new common European market trading across Polish borders will change literally overnight. There is not much time left till May 1, 2004 to get abreast with the main legislative changes affecting your businesses. Hurry up!
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
