Prime Minister Morawiecki indicated that friendly taxes are taxes that are low, simple and fair. The Warsaw Enterprise Institute has taken the same stance for many years, so we welcome this declaration with enjoyment. Unfortunately, the Polish tax system is very, even extremely far from this ideal. The laws on PIT, CIT and VAT have a total of nearly 1,200 pages full of provisions often incomprehensible to the most eminent experts. We hope that the Prime Minister’s words will turn into actions and concrete steps will be taken to create a friendly tax system in Poland. The announced reduction of the PIT to 12 percent is not enough.
On Friday, the Council of Ministers passed a bill making changes to the personal income tax. Initially, the proposals to lower the PIT rate, eliminate the criticized middle class relief or the possibility of a partial deduction of health contributions from the tax base should be assessed as positive. However, even the introduction of these changes in question will not be sufficient to consider the Polish tax system as friendly. First of all, it is necessary to point out a number of fees and tributes formally not called taxes, which formally have the same function. Additionally, a friendly system should not only be simple and fair, but also thoughtful, stable, and predictable.
In the latest edition of the international index of economic freedom, prepared by the Heritage Foundation, Poland was ranked 39th and was classified in the “moderate freedom” category. Unfortunately, the overall score was 1 point lower than the previous year, meaning that the level of freedom has deteriorated. In other rankings, Poland does not fare well either. According to the 2021 International Tax Competitiveness index, we ranked penultimate out of 37 ranked OECD countries. The low assessment of the competitiveness of the Polish tax system was determined, among other things, by a number of distorting for competition wealth taxes, including separate taxes on the transfer of real estate, property, banking assets and financial transactions or the limited ability to deduct net operating losses from future profits.
However, these rankings do not take into account one of the most significant problems of the Polish tax system, namely legislative issues. In Poland, there is an inflation of law manifested by an excessive number of legal acts and their dubious substantive quality. Many projects are underdeveloped, raise interpretation doubts or even contain substantive or formal errors (e.g. in terms of references). In such a legal environment, compliance requires high costs for entrepreneurs, and the legislator’s lack of stability and predictability can negatively affect investment attitudes and undermine trust in state authorities.
Moreover, a negative legislative practice, quite common in recent times, is the lack of adequate substantive justification for proposed changes and the limitation of public consultation. Many important bills are submitted by MPs instead of being processed through the government legislative process. It involves shortening the procedure and omitting the process of inter-ministerial consultations, opinions or public consultations, as well as the lack of the need to present an impact assessment. In addition, vacatio legis is being shortened, which is intended to provide adequate time for familiarization and implementation of new regulations in business operations.
An example of an inappropriate approach to legislation is the Polish Deal. The extensive changes were processed in record time – the law was signed by the President less than 4 months after the bill was released, and the vast majority of the provisions came into force within another 1.5 months. However, more adjustments are now needed to improve the system, which unfortunately does not work as effectively as it was announced.
In this context, the words of Prime Minister Morawiecki should be appreciated, but we hope that they will be followed by concrete actions aiming at a comprehensive reform of the tax system, which will be properly prepared and consulted with stakeholders and will not require continuous amendments destabilizing the lives of taxpayers.