The Polish government has finally approved a draft bill on a retail tax, the prime minister’s office announced on June 14.

The retail tax has been in the works since Law and Justice (PiS) took office in November, having been a flagship proposal during the election campaign. The government, however, has changed its tune concerning the aim of the tax. The levy was originally presented as a means of levelling the playing field for small, local retailers, however, Warsaw now says it hopes a levy on large shops will help balance a budget strained by spending.

“The year and the following years, the revenue form the tax will be one of the sources of financing the programme [of child subsidies],” the prime minister’s office said in a statement. Poland hopes to reap PLN1.53bn for the state budget per year from the tax, the finance ministry said in late May. 

The draft bill adopted by the cabinet includes several parametres already known. Retailers will be taxed progressively, depending on monthly turnover. Revenue ranging from PLN17mn-PLN170mn will be subject to a tax rate of 0.8%; that above PLN170mn will face a charge of 1.4%.

Commodities such as natural gas or coal, fuels used for heating, as well as water, and medicines will be exempt, the finance ministry said. Sales over the internet will not be taxed. Companies paying the tax will also be entitled to deduct payments from their corporate income tax base.

A similar tax was introduced in Hungary last year, only for the European Union to strike it down due to its progressive nature. Warsaw has been working carefully to avoid a similar fate for its new levy, but that remains to be seen.

Analysts at Erste predict that the largest retailers will be able to pass much of the cost of the new tax onto suppliers. That will not go down well with Poland's farmers and food processors, who are already under pressure due to the Russian embargo on EU food imports.