Poland's PiS plans to copy Hungarian taxes on foreign investors

By bne IntelliNews June 17, 2015

bne IntelliNews -

 

Poland’s main opposition party Law and Justice (PiS) would seek to introduce special taxes on financial institutions and retail chains should it gain power in general elections in the autumn, a senior adviser said on June 16.

Piotr Glinski, who is in charge of drafting PiS' policy programme ahead of the vote, scheduled to take place by October, suggested the party would table proposals for special taxes on banks and retail chains, similar to those in Hungary. The populist party, which leads opinion polls, would also limit the transfer of profits out of Poland by foreign companies, he added.

"We uphold the proposal of sectoral taxes - that is, taxing financial institutions and retail networks," Glinski said in an interview with the Polish newspaper Rzeczpospolita. "We want to send a message to our foreign guests that we are happy to see their honestly-run businesses, but we have to introduce taxes which they are also paying in other countries."

The suggested policies will only raise the worries over the damage a PiS victory could do to market sentiment and the economy. The banking sector is already under pressure from the huge risks connected to forex mortgages, with over 500,000 borrowers having to pay higher installments since the cap on the Swiss franc was removed in January. PiS has suggested it will push lenders to convert loans at historic rates, which would inflict huge losses on lenders.

Hungarian borrowers escaped the Swiss franc hike by the skin of their teeth, after banks were forced to convert loans late last year. Prime Minister Viktor Orban's government has also imposed several taxes on the sector since coming to power in 2010.

However, it is now pushing to thrash out a deal with the banks to get them to resume lending, with credit levels having dropped dramatically over the past five years. Investors have also pulled back, wary of Budapest's erratic policymaking. Analysts insist Hungary is set to struggle to keep pace economically with the rest of the Visegrad region over the next few years because of mistrust from banks and investors.

However, Glinski claims PiS is not concerned that the PiS policies would scare investors off. "This has not happened anywhere in the world," he says. "Please look at Hungary, which has introduced such measures recently."

As part of the policy package, PiS says it would use the funds raised from the sectoral taxes to increase the income tax threshold to PLN6,500 from the current PLN3,091.The latest opinion polls have the alliance led by PiS on around 30% support. Meanwhile, the ruling centre-right Civic Platform, busy trying to find some direction after a startling collapse this year, is running at around just 19%.

About two-thirds of Poland's banks and most of its large retail networks are foreign-owned. All companies pay a flat income tax rate of 19%. Banks also pay a levy for a banking guarantee fund.

Foreign banks are already heading for the exit. Raiffeisen Bank International is trying to sell its local unit Polbank, as is US giant GE Captial. However, they have struggled to attract bids, with the government still to make a definite response to the forex loans issue.

State-controlled insurer PZU has recently emerged as the leading contender to buy both businesses. The treasury and financial sector watchdog KNF have expressed support for its plan to build a new banking giant and kick off the "repolonisation" of the sector. The plan is reminiscent of Hungary's recent purchases of major banks, including the local unit of GE.

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