ZPP Newsletter
Warsaw, July 20th, 2018
THE UNION OF ENTREPRENEURS AND EMPLOYERS AGAINST THE LIQUIDATION
OF THE FLAT TAX RATE CONCERNING ECONOMIC ACTIVITY
Already mid-May this year, when the idea of liquidation of the flat tax for entrepreneurs and the actual introduction of the 3rd tax threshold was publicly presented, the Union of Entrepreneurs and Employers expressed a very critical opinion on this issue, pointing, among others, to the fact that the tax will strike financially above all the still fledgling middle class. Today, we have a ready-made draft bill that must be judged even more harshly – it assumes increasing tax burdens not only for wealthier citizens, but for all those employed, thus contributing to the increase of the tax wedge in Poland.
The presented draft bill comprises of three key elements. First of all, the Solidarity Support Fund for Disabled People (Solidarnościowy Fundusz Wsparcia Osób Niepełnosprawnych) is to be created. It is virtually impossible not to notice that the legislator therefore decides to clone the State Fund for Rehabilitation of Disabled People (Państwowy Fundusz Rehabilitacji Osób Niepełnosprawnych – PFRON) – albeit under a different name. Even the activities, which the Fund’s resources will be allocated for, are alike – they concern, among other things, execution of “tasks in the field of social and vocational support for disabled people” (the PFRON Act includes the execution of tasks “in the field of occupational and social rehabilitation of disabled people carried out by foundations and non-governmental organizations”) or “programs co-financed from European Union funds for people disabled people” (PFRON Act: “programs planned for implementation in a given year, supported from European Union aid funds for people with disabilities”).
Thus, the authors of the draft bill propose to actually double an already existing institution. They do so in a situation in which the functioning of certain elements of the system built around PFRON requires far-reaching adjustments (e.g. the issue of “trading” on payment reductions, which the Union of Entrepreneurs and Employers ZPP already elaborated on in a separate document). It is necessary to point out at this point that there is a lack of systemic logic. When it is still necessary to reform the rules and regulations of operation of one fund, another one is established, designed for practically the very same purpose. We believe that from the point of view of the quality of state institutions, as well as the effectiveness of their activities, such fragmentation and duplication of entities do not serve any purpose, it is point-blank harmful – therefore, the legislator should refrain from doing so.
The real problem, which should be addressed with absolute certainty, appears, however, not at the stage of creating the new fund, but when the legislator describes the system of its financing. As far as taxes are concerned, namely a new tax threshold and liquidation of flat rate income tax for entrepreneurs – the arguments against this solution have already been stated. The introduction of this concept will be economically damaging, and it also stands in radical violation of election promises (government representatives would repeatedly state that they did not intend to introduce new taxes, and that they would be able to finance their social projects thanks to tightening the tax system and allocating resources more reasonably, not increasing fiscal burdens). What has been proposed in the draft bill is now way beyond this framework.
It is postulated that the resources of the Fund should come not only from revenue from the new tax –it is clearly stated in Art. 3 that the Fund’s revenues are “compulsory contributions to the Fund”. In accordance with Art. 4, persons subject to pension insurance (with exceptions listed in the draft bill) are compulsorily obliged to contribute. To put it in straightforward terms – the draft bill proposes to increase the compulsory taxation of all wages, at least from the minimum wage up (if the salary comes from different sources, then it is added up), with regard to people employed on the basis of any contract. In practice, this means that employees, who already earns net only slightly more than 50% of the expenses actually incurred by the employer, will receive even less. Even if they only earn the minimum wage. Socially, this is an extremely harmful idea.
The Union of Entrepreneurs and Employers has long indicated that one of the biggest problems of the tax system in Poland (and more broadly – the system of all public levies) is the fact that salaries and wages are drastically taxed, in particular the lowest ones. Even the proposal of a new tax system, developed by the circles close to ZPP, primarily assumed a radical reduction in labour taxation. People’s affluence and wealth come from natural resources, capital, and work. We are unable to change the state of having natural resources to a significant extent by means of peaceful methods, nor do we have accumulated capital, because throughout the last several centuries, we have only had short periods of independence and free entrepreneurship in Poland. The conclusion can only be one – if we want to catch up with more affluent countries, we must focus on work.
How is the work of Poles to generate wealth, since such a large part of its financial reward in the form of remuneration is simply taken away by the state? The proposal to increase the burden on remuneration is a curious oddity – the tax wedge in Poland is already at the level of the OECD average (and the organisation brings together highly developed countries whose citizens are in many cases much more affluent than Poles). Why does the government want the level of these burdens to further increase? Wages began to grow more dynamically (Central Statistical Office of Poland GUS figures speak for themselves), and another way (following the fuel fee) was found for Poles to benefit from the economic prosperity to a lesser extent than they could.
Apart from the issue of a fair and effective distribution of the tax burden, the next question is also relevant: to what extent will the new contribution additionally burden the remuneration of Poles? It is scandalous that there is nothing about this in the draft bill. According to Art. 4 sec. 2, the amount of the contribution to the Fund is specified in the budget act. Therefore, we are dealing here with an unprecedented situation – not only that the legislator postulates the introduction of an additional levy, they also do not specify its amount in the draft. Regulations in this form would mean that the government can manipulate the amount of the contribution year to year. It is a fatal proposal and one violating a number of constitutional principles.
Apart from the obvious issues, such as the principle of legal security or trust in the state, it is worth considering Art. 217 of the Polish Constitution and the principle of regulating public levies and their structural elements resulting from it exclusively and completely in an act. According to the jurisdiction of both the Supreme Court and the Constitutional Tribunal, it is clear from the provision of the Constitution that all the essential elements of the “tribute ratio” should be regulated directly in an act. This means that in relation to these “essential elements’ (which certainly include the tax rate or the amount of the premium), one cannot use delegation to issue a regulation. Is the legislator, while not wanting to determine the amount of the tax directly in the act, trying to find a way out of the situation, transferring the amount of the contribution to be paid to the budget act, and not a ministerial regulation?
It might seem at that time that the requirement to determine the essential elements of the tax ratio is respected; however, the budget act is of a special nature, and the mechanism proposed by the authors of the draft bill means the breakdown of the regulations of essential construction elements into two legal acts, one of which is additionally of rotating character. There is also no doubt that the intention expressed in the provision was that the legislator could not leave in the act regulating the tribute any “free room” to determine the rate or the object of taxation in a separate act, and this certainly will happen if the bill is adopted in the present form.
At the same time, one ought to make note of double (sic!) false narrative surrounding the project. On the occasion of presenting the tax concept, government representatives in an untrue way claimed that they were not raising taxes. The fact that this was a lie was already known back then. At the same time, however, it was being said – in an extremely populist tone – that additional support for disabled people with the help of a new tribute would only burden the “richest” of Poles. It can now be said that the public was then misled for the second time – the draft bill explicitly states that everyone should contribute to the new Fund, not only those whom the government considers to be “the wealthiest”.
To sum up, we consider the draft bill to be a terrible attempt to increase the fiscal burden on remuneration and income from economic activity in Poland, which is directly contrary to the economic interest of our country, as well as in contradiction with the announcements of the government. At the same time, we draw attention to the scandalous form of the regulation regarding contributions to the new Fund – one cannot accept a draft in which the amount thereof is not directly specified and which refers to the budget act. We postulate withdrawal from this harmful project and to start a proper debate: both concerning the rational support of people with disabilities and with regard to the construction of a fair and effective tax system in Poland.
The Union of Entrepreneurs and Employers
