The plot thickens
Entrepreneurs say the legislation is a lost opportunity for necessary reform and a thinly veiled means of sucking more money from the private sector.
The government is introducing a raft of tax and business legislation designed to boost economic activity, but employers say the new laws will hinder business activity and make Poland's jungle of red tape even thicker.
"I consider capital duty as an obstacle to the development of EU companies. Abolishing capital duty is in line with our strategy to create more jobs and growth," said EU Taxation and Customs Commissioner László Kovács last month.
Capital duty is an indirect tax levied on contributions of capital for companies that are starting out or increasing their initial capital. Poland is one of only seven EU countries that still levy the tax, and it has recently implemented new regulations which will see an effective increase in capital duty.
Since 1985, the trend has been towards the elimination of capital duty in European Community member states. Now, member states have the right to impose the tax at a maximum of one percent. According to the European Commission's plan in 2008, it will be reduced to 0.5 percent and eventually abolished in 2010.
Adam Ambrozik, from the Confederation of Polish Employers (KPP), says that taxes, apart from being a sort of state income, should also be a stimulus for the economy. "This one plays no other role but is just another fiscal solution," he says. Irena Ożóg, the president of Ożóg & Partners and an expert at the Business Center Club, adds: "The European Commission's proposal would meet the expectations of Polish entrepreneurs and is beneficial for Polish companies because the tax limits the sources of financing for companies."
A heavy burden
Tax is the greatest burden for entrepreneurs. Only recently, an amendment to the Commercial Companies Code, adapting it to EU requirements, made all limited liability companies increase their minimum initial capital from zł.25,000 to zł.50,000. Capital duty will rise accordingly.
"For some entrepreneurs it was virtually impossible to meet the requirement, which is why they no longer exist or they function illegally. For those that managed to go through the change, this process left a mark on the whole year, as is the case of the company I'm in charge of," says Jakub Rodzeń, president of RWS, a small company producing paper packaging.
With the tax in place, companies like Rodzeń's have little chance to grow, but Polish lawmakers seem to be deaf to the EU proposals. In addition, they are making the cost of borrowing higher. "From January 2007 the regulations have gone in the opposite direction. Parliament has also introduced a 0.5 percent tax on loans given to a company by shareholders," says Ożóg.
Burgeoning bureaucracy
Over the past few months lawmakers have introduced a raft of new additions to taxation law. "The Finance Ministry no longer demands tax declarations submitted to tax offices every month. This is reducing bureaucracy, but for tax offices rather than for businesses. They still have to calculate the tax and pay it to the tax office. However, if the tax office doesn't know how much a company owes them, the company will be subject to more frequent audits," says Ożóg.
The number of audits being carried out by tax-office workers presenting nothing more than an ID card has also increased. "Now they can enter a company once they have shown their ID to 'a person who does a certain task for a business.' It could happen that this person is a plumber fixing a pipe, and this will be enough," says KPP's Ambrozik.
Lack of interpretation
There are also new rules concerning the interpretation of tax regulations, which will take effect in July. Magdalena Garbacz from the Polish Confederation of Private Employers (PKPP) Lewiatan sees them as a cause for concern. "If anything changes in a given regulation, any interpretation released by a tax office before the end of June will lose its effect and the entrepreneur will not be informed about it," says Garbacz.
Ożóg adds that the tax office will no longer be obliged to provide a valid interpretation, which could delay or even stop new investments if a company needs to know the legal consequences of a given tax obligation. "If an entrepreneur submits a formally incomplete request for an interpretation the office will neither answer it nor inform the company," says Ambrozik. Businesses will also have to pay zł.75, up from the current zł.5, for each question they ask. PKPP Lewiatan's Garbacz says that the increased fee was supposed to go on new centers providing interpretations and the training of experts. "The plans have disappeared," she says.
Amortize with care
The Ministry of Finance failed to comment on the new laws on monthly declarations and tax interpretations. However, it did comment on its liquidation of faster amortization, which allowed for a 30-percent rebate. Under the new regulations, "a single amortization may not exceed EUR 50,000 [zł.190,000 a year] and is treated as a form of public aid de minimus. It is treated thus because it cannot be used by all taxpayers. Within a period of three consecutive years it cannot exceed EUR 100,000 [zł.380,000]," explains Zofia Ogińska from the Finance Ministry.
Ożóg says that a EUR 100,000 amortization is not much for three years, especially for corporate bodies. Furthermore, if, for example, a company is granted a preferential loan, it would be incorporated into that amount as it is also treated as public aid. "In that case the entrepreneur has to be careful so as not to exceed the amount," she says.
New definitions
The Finance Ministry has also altered the definition of 'economic activity' within the Personal Income Tax Act (PIT). If the responsibility towards third parties for the results of an activity is borne by the commissioner of the work, or if the work is performed under supervision and in an assigned place and time, or if the person who executes the activity doesn't take an economic risk, such activities are no longer defined as an economic activity.
Jakub Lutyk, a spokesperson for the Finance Ministry, says the aim of the amendment was not to restrict the freedom of economic activity, but to prevent taxpayers from setting up businesses in order to lower labor costs, while in reality they are working for employers. "The amendment was supposed to explain unambiguously both to businesses and tax offices what economic activity is," says Lutyk.
Experts believe the new law will reduce the number of self-employed. However, Lutyk says the Ministry doesn't expect a massive reduction.
Nothing to celebrate
According to Małgorzata Starczewska-Krzysztoszek from PKPP Lewiatan, the new regulations are detrimental to business, along with being negligent. "There was a chance to do something and move forward but it has been neglected. It's a shame because some things are costless. Instead of reducing the number of regulations, it seems to have grown. This leads to the inflation of law. The more regulations the worse, because that causes illegibility of the law. One regulation says something, another says something else," says Starczewska-Krzysztoszek.
Ożóg gives an example of a problem with the change to the monthly tax declaration. "Businesses will not have to submit them, but if a company wants to take part in a tender, how will the tax office issue a statement that the company is not behind with tax if they don't know whether the amount paid is right? Such a statement is required by the tender law," says Ożóg.
Neglected areas
Starczewska-Krzysztoszek lists further areas which were ignored by the new legislation, such as the economic information system, where companies could learn about potential partners. The project was started but its implementation has been postponed. The question of reduced labor costs was raised early last year but was soon forgotten when the Finance Ministry realized it would cost the budget some zł.12 billion.
Work on creating an agency to promote exports has also lasted well into a second parliamentary term. An amendment to the Labor Code has reduced working time by two days a year if holidays fall over the weekend. Work on the new VAT act has also been postponed.
According to PKPP Lewiatan and KPP, additional budget expenses, such as the baby bonus or earlier pensions, come from the budget and do not affect entrepreneurs directly, but nonetheless bring about a danger that the government will try to increase taxes to pay for them.
Happy new year
Despite these problems, the Polish economy ended 2006 in good shape. GDP growth sped up from 3.5 percent in 2005 to 5.3 percent in 2006. Within the first nine months of 2006 the net profit of Polish companies amounted to zł.50.7 billion, which equaled the total 2005 profit. New investments have grown by 15-17 percent, and wages increased by some four percent. The rise of exports amounted to a very positive 20 percent.
"The year 2006 started and ended with political chaos. We had two Prime Ministers, two initial addresses, four Finance Ministers, two Ministers of Labor and Social Policies, two coalition contracts and the declaration of 100 key regulations," says Henryka Bochniarz, president of PKPP Lewiatan. "Anyone can see what's left. Fortunately, the economy allows us to be optimistic about 2007."
