Other sectors seen at risk as Poland struggles to re-jig retail tax

Other sectors seen at risk as Poland struggles to re-jig retail tax
Poland's effort to raise money from large foreign retailers looks to have hit a serious snag
By bne IntelliNews September 21, 2016

Poland will present a new version of a tax on retail turnover in November, a government representative said on September 21.

Poland, which needs extra revenue for budget strained under social expenditure, had a previous version of the retail tax suspended by the European Commission on September 19. However, it's likely to struggle to push a new bill, which could see Warsaw cast its eye at other sectors as potential sources of cash for the budget.

The commission said that the tax’s progressive form discriminated against large retailers and therefore was in fact illegal public aid for smaller competitors.

“We don’t know how long it will take the European Commission to issue a final decision on the retail tax and that is why we need to be ready with a second proposal,” Deputy Finance Minister Wieslaw Janczyk told reporters, according to PAP. Janczyk said he expects the parliament to pass the new version of the tax in November.

The details of the new bill are uncertain, but speculation suggests a flat tax at a rate of 0.6%-0.8% of turnover. It would encompass as many retailers as possible to avoid commission’s charges of discriminations. However, that could also provoke problems. 

"A flat rate would anger small retailers, whom the PiS is claiming to protect from unfair competition of large chains," points out Otilia Dhand at Teneo Intelligence. "It will likely be challenging for the ministry to find a compromise solution and the revenue from the redesigned tax may be lower than stipulated in the 2017 budget proposal."

The ruling Law & Justice (PiS) hopes to reap around PLN1.6bn from the tax in 2017 to help fund spending. Following the suspension of the tax, this year’s revenue of over PLN400mn will not be achieved.

Combined with the difficulties of designing a tax that would keep all happy, Warsaw could look for alternative solutions, including taxes on other sectors populated by large - and often foreign - companies. A bank tax was introduced in Febraury; the telecom and media sectors are other likely candidates.

"The government may be forced to seek additional budget revenue to meet its 2017 spending promises and avoid a relapse into the EU’s excessive deficit procedure (EDP) next year," Dhand concludes.