ZPP Newsletter
Warsaw, 18th August 2020
New taxes proposed by the European Union threaten Poland’s development
The topic of the funds negotiated by Poland has dominated the discussion revolving the conclusions of the last summit of the European Council. Meanwhile, little attention has been paid to the introduction of European taxes. In a new report, the Union of Entrepreneurs and Employers presents a number of threats resulting from the proposed European levies. Plastic, digital and carbon taxes as well as the extension of the ETS do not comply with the requirements of the European Parliament. They also lead to a deeper fiscal harmonisation, and thus the unification of business conditions in the EU. From the Polish perspective, the new taxes pose a risk of a disproportionately heavy burden on the economy and greater dependence on financing from the EU budget.
There is no doubt that the COVID-19 pandemic and the resulting challenges for the EU require extraordinary measures. Therefore, the proposal to create the Next Generation EU fund as an addition to the traditional EU budget should be treated as an opportunity to rebuild the member states’ economies. However, the taxes created to finance the fund will have effects that go well beyond the coronavirus crisis.
“The conclusions adopted at the summit in the field of taxes are very dangerous for Poland and may cause us to be permanently poor compared to Western Europe. Poland has few tools to compete with the West. The legal and institutional order is one of them. Harmonisation of the law deprives us of this advantage,” says Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers.
In a new study, the Union of Entrepreneurs and Employers analyses proposed European taxes based on criteria established by the European Parliament. As a result, it identifies a number of threats and a trend of deepening fiscal integration – extremely dangerous from the Polish point of view.
“At the moment it remains possible for Parliament to veto this agreement. It seems that it is in the interest of Poland and Polish business to find an agreement between the Council and the Parliament and to refine in the best way possible the mechanisms that would limit the negative impact of new taxes on the development opportunities for the Polish economy, while at the same time taking steps to rebuild the European economies after the pandemic,” emphasises Kamila Sotomska, Analyst at the Department of Law and Legislation of the UEE.
In a report by said Union, it is indicated that plastic, digital and carbon taxes and the extension of the ETS system may not meet the conditions set by the European Parliament, including:
1) economy: the taxes proposed by the Council do not comply with the principle of universality of taxation contained in this criterion.
“The Union of Entrepreneurs and Employers consistently opposes the introduction of any sectoral levies. One of the key features of the tax system should be universality, whereas imposing additional burdens on arbitrarily selected sectors of the economy is unacceptable,” says Cezary Kaźmierczak.
“We support activities aimed at transformation towards a circular economy, but it seems that tax instruments are not appropriate for solving this type of problems,” adds Kamila Sotomska.
2) justice: in line with this notion, situations where a greater burden is placed on more disadvantaged member states should be avoided. Although the plastic tax provides a discount for member states whose recycling systems are at an early stage of development, the UEE believes that the levy will disproportionately burden poorer EU countries. Poland will become the fifth largest tax payer, paying EUR 429 million to the EU budget. The effects of this new regulation may be particularly severe for local governments or operators of waste incineration plants and landfills. By comparison, the cost of managing a tonne of waste in thermal treatment installations (which currently amounts to PLN 300-700) will have to be increased by PLN 3,500 in tax.
As the UEE points out in their report: “the introduction of a digital tax will have a negative impact on the condition of the Polish economy, and thus may not fulfill the premise of justice between member states. The dynamic development of the digital industry shows its growing share in the creation of Polish GDP – in 2014 it amounted to 3%, in 2016 approximately 6.2%, and in 2025 it may amount to 12%. Moreover, the share of established digital companies increased significantly: from 3% in 2015 up to 20% in 2019, and Poland remains in fourth place among the EU members in terms of the number of IT graduates. So there is no doubt that it is in our interest to create and maintain favourable conditions for the development of the digital industry ”.
3) red tape and administration: this criterion means that the costs of introducing a tax must be small in comparison with the resulting profits. However, the levies proposed by the Council will not meet this condition, as they have negative practical, legal, and political consequences.
The amount of carbon tax is to be determined based on the amount of carbon dioxide emitted in the process of production of a given good. Determining the carbon content poses a number of practical and legal problems, e.g. it would force companies to disclose supply chain details, i.e. trade secrets.
We will also run into serious problems in terms of digital taxation. According to the OECD, it would be almost impossible to divide the economy into a digital and a traditional economy, and would it require putting arbitrary boundaries into place. Given the income ceiling set at EUR 750 million, the digital tax will be a de facto tax on US companies. As America is opposed to any country’s proposition to regulate the digital sector, such unilateral action will lead to political tensions and the weakening of the EU’s position in relation to its partners in other parts of the world.
“The Union of Entrepreneurs and Employers recommends actions that will mitigate the negative effects of taxes proposed. For Poland, the ability to compete with other countries in terms of institutional environment for entrepreneurship should be of key importance. At the moment, we are not taking enough advantage of our situation, but the shift towards ‘fiscal federalism’ will practically deprive us of it,” concludes Cezary Kaźmierczak.
