Warsaw, 15th June 2018
POSITION OF THE UNION OF ENTREPRENEURS AND EMPLOYERS ON THE PROPOSED AMENDMENT TO THE PROVISIONS ON LEASING OF PASSENGER CARS
On 13th June 2018, the Polish Ministry of Finance published a communiqué in which it outlined a number of tax changes planned for the coming months. The vast majority of these changes are a source of optimism –inter alia, the unification of the VAT rate matrix (the employers’ associations have been asking for such an amendment for a long time – it is necessary to end the absurd multiplication of rates for analogical products), the creation of a new Tax Ordinance Act, or the reduction of the number of reporting and information obligations that entrepreneurs are subject to. Unfortunately, it seems that the Ministry has decided to use these – undoubtedly deserving of support – announcements in order to “smuggle” among them changes that make car leasing completely unprofitable. The Union of Entrepreneurs and Employers anxiously analyses this concept and evaluates it definitely negatively.
In 2017, over 480,000 new passenger cars were sold in Poland. The increase in the number of cars sold in recent years may astonish – still in 2015, dealers were happy to exceed the barrier of 400,000 units sold, while in 2013, which was then the best in a long time, 331 thousand passenger cars were sold. Thus, in four years the number of new cars sold increased by 50%. There is no doubt, therefore, that the dynamics of market growth are powerful – they are connected both with the gradual gentrification, people more and more often decide to buy a new car from an official dealership, and – as is the case of entrepreneurs – with advantageous offers that allow car financing in a different way than purchase, such as leasing.
Regulations that are in force so far made the operating leasing of a car a very favourable solution for the lessee – the leasing instalment could be included in the costs of obtaining revenue without any limitations. Thus, car leasing was much more cost-effective than buying a car, because in the latter case it was possible to take advantage of depreciation charges included in tax deductible costs, limited to the equivalent of EUR 20,000. This way, the legislator encouraged entrepreneurs to lease, which meant that they would more willingly decide to get a new car, without having to spend a large sum of money, which they could use in a different way. Such a system was beneficial in fact for all market participants – new cars found their new owners, entrepreneurs enjoyed an increasingly modern fleet, and at the same time the money they would have to spend on buying new cars, was still at their disposal, so they could decide on other investments.
The proposal of the Ministry of Finance assumes a radical break with the above-described state of affairs. The Ministry proposes that several steps be taken:
- raising the tax allowance for depreciation by less than PLN 70,000 up to PLN 150,000;
- introduction of a limit to classify lease instalments as tax costs in the amount of PLN 150,000;
- introduction of a limit to include both lease instalments and depreciation charges in the tax costs if the car is purchased, using cars for mixed purposes (i.e. not only related to business activities) up to 50% of the car’s value.
To summarise, the legislator plans to equalise the tax effects of leasing a car with the effects of buying a new car by setting an upper limit of PLN 150,000 in both cases, while limiting up to 50% of the value of the car, the possibility of including instalments and write-offs in the costs of running a business in the event that the car is used not only for business purposes. Thus, not only the lessees, who will not be able to include in their costs the entirety of leasing instalments, will lose significantly, but also those who plan to purchase a car of a value not exceeding approx. PLN 170,000 and use it not only for business purposes. Since until now when buying a car for PLN 150,000, they could include depreciation write-offs up to PLN 86,000 in their costs. When the discussed changes come into force, they will be able to use write-offs only up to the amount of PLN 75,000 (half of the car’s value). In the same case, the lessees can now include all instalments in their costs, and after the changes, they will also be limited to PLN 75,000, i.e. the sum that can be included in costs, will be reduced by as much as half.
The proposed system significantly rewards the purchase of more expensive cars – up to PLN 300,000. In this case, an entrepreneur purchasing a car can count on the cost of depreciation write-offs up to PLN 150,000, that is almost twice as much as it is possible at the moment.
We believe that the proposed model is extremely unfair and detrimental to all market users. It remains a mystery why the Ministry of Finance decided to hinder such a dynamically growing segment of new car sales. Indeed, not only entrepreneurs (both those who sell cars and those who later use them) gain from it, but so does the state – due to the revenues from VAT, excise and other taxes. We believe that the proposal is completely absurd. One can even call it a sabotage of a thriving and dynamically developing industry. There are no rational arguments justifying the introduction of solutions proposed by the Ministry of Finance. We appeal, therefore, to withdraw from these harmful proposals and allow Poles to drive new cars – after all, the government seems to care for clean air, and there is no doubt that those are new vehicles that are low-emission ones, rather than the older ones.
The Union of Entrepreneurs and Employers
Photo: Connor Lunsford / on lic. Unsplash