10^th December 2018

Polish President Andrzej Duda appointed ZPP members to the Social Dialogue Council

On 10^th December 2018, the President of the Republic of Poland, Andrzej Duda, appointed representatives of the Union of Entrepreneurs and Employers to the Social Dialogue Council. This is the culmination of several years of efforts, aiming primarily at obtaining the status of a representative organisation, which was already achieved in March this year, and then enforcing the right to have representatives appointed to the Council provided for by law.

We are glad that small and medium enterprises will finally be represented in this body. The participation of representatives of the Union of Entrepreneurs and Employers (ZPP) in the Council will constitute natural continuation of the activities of many years that we have been executing, focusing our efforts on the struggle to improve the conditions for running a business in Poland, simplifying the tax system and streamlining the judiciary. We believe that through active participation in the dialogue conducted within the Council, the Union will be able to realise its statutory goals even more effectively.

Warsaw, 5^th December 2018

 

The grey economy of tobacco products is in decline, but still too large – further changes necessary

The grey economy of cigarettes in Poland has decreased by almost 30%, but it is still more than the average in the European Union. It is necessary to take further steps in the fight against this phenomenon – according to the latest report of the Union of Entrepreneurs and Employers “Grey market for tobacco products. Diagnosis, proposals for solutions”.

Regardless of the definition of the informal economy, there is no doubt that this is a harmful phenomenon, and those sectors are particularly vulnerable and exposed to it where the “bonus” for illegal activity is the highest. One of them is the tobacco sector. As a result of unreasonable excise tax increases and the lack of adequate legislative activity, the share of the grey economy in the consumption of cigarettes in Poland, according to the consulting firm KPMG, reached almost 17% in 2015. This would mean that almost one in five cigarettes smoked in our country came from an illegal source.

“The situation back then was dramatic,” claims Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers. “We saw the effects of further excise tax increases, and we warned that the problem would only deepen. It seems that the collapse in 2014 sobered many people up and they came to the conclusion that it was probably not the best idea to increase this tax so rapidly and drastically, since the budget didn’t profit from that, and the illegal market was expanding.”

Apart from the unreasonable tax policy, there were no specific legislative actions. Dried tobacco, for example, were taxed, but there was no wider, systemic approach to fighting the grey zone. The focus was on solving problems in an ad hoc manner that were especially evident in a given period. It was not until 2015 that a broader campaign to fight the informal economy of tobacco products was launched. A register of intermediary tobacco entities was introduced, an obligation to deposit excise security was imposed on these entities, and an obligation to keep records of dried tobacco was introduced. Then, in 2017, the “tobacco package” was implemented. It provided comprehensive tools to supervise and monitor the market for growing, producing and selling tobacco.

One didn’t have to wait long for the results – the share of the grey zone in the cigarette market in Poland amounted to 12.1% according to KPMG experts. It is almost 30% less than in 2015, but at the same time almost 30% more than the average for the European Union. This means that there is still much to do in the fight against grey economy.

“The main area to be improved are the regulations included in the penal fiscal code and detailed criminal provisions relating to the illegal circulation of excise goods,” says Katarzyna Włodarczyk-Niemyjska, Director of the Law and Legislation Department at the Union of Entrepreneurs and Employers. “Presently, the provisions are inadequate to the specificity of prohibited acts related to this trade, and sanctions are insufficiently related to the losses for the state budget. We postulate on the pages of our report to change this state of affairs.”

As it is emphasised in the document, the need for further actions aimed at fighting the informal market of tobacco products in becoming rather urgent, because at least two significant risk factors appear on the horizon: the ban on sales of menthol cigarettes entering into force in 2020, as well as the potentially too high increase in the minimum level of excise duty on tobacco products required by the tobacco directive. Both these changes, the former being certain and the latter so far only plausible, can significantly affect the growth of the grey economy of tobacco products in Poland, and this would result in measurable losses both on the side of legally operating entities and the State Treasury.

 

Report of the Union of Entrepreneurs and Employers: “Grey market for tobacco products. Diagnosis, proposals for solutions”

 

 

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3^rd December 2018

Poles divided on the trade ban, but for two free Sundays a month for all employees

As much as 71% Poles assume that the state should not determine how citizens spend theirs Sundays, and the ban on trade is perceived as violation of their consumer freedom, according to a survey by Maison & Partners commissioned by the Union of Entrepreneurs and Employers.

What is important, the demand put forward by the Union and the trade sector that instead of sectoral regulations, a statutory guarantee of two free Sunday per month be introduced for each employee in Poland enjoys very large support, of as many as 65% of all respondents. This way, thanks to efficient timetables, buyers would have the opportunity to shop on Sundays, and employees – a day off.

From the presented research, one can also conclude that regardless of their public perception, the provisions regarding trade restrictions on Sundays seem to be completely ineffective. It turns out that before the introduction of the new regulations, 88%of Poles did their shopping on Sunday, whereas now it is 80%, and they complain about high prices and limited range. A loss of merely 10% means that the restrictions cover only a small part of the trade sector.

“Interestingly, among the opponents of trade restrictions on Sundays, a significant group are those who are currently working in this sector,” emphasizes professor Dominika Maison. “44% of them negatively appraise any restrictions whatsoever. However, within the group that has never worked in this industry, the percentage of opponents of restrictions amounts to 37%. Similarly, the restrictions of trade on Sundays is perceived as a hindrance by 51% of employees in this industry and only 36% of those who have never worked in this trade.”

As one can read in the report based on the results of the study, the regulations in force since 2018 limiting trade on Sundays are supported by 43% of respondents, and 42% of respondents oppose them. At the same time, the solution to come into force in 2020, resulting in an almost total ban on Sunday trade, is negatively perceived by as many as 65% of Poles. Interestingly, two groups dominate among these opponents, according to their place of residence. It should not be a surprise that one of them are the inhabitants of large cities, over 500,000 people, out of which exactly one out of two opposes the restrictions of trade on Sundays in any form. However, it turns out that the biggest group of opponents of these restrictions are residents of small towns, up to 20,000 inhabitants.

“In this group, over half of the respondents negatively appraise any restrictions on trade on Sundays,” – notes Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers. “It means that the further this restriction goes, the worse the reception will be in smaller towns. The result may be surprising, but we must remember that in small towns a visit to a shopping centre is quite often the only form of entertainment available at the weekend for the average citizen. If people are forbidden to spend their free time in this way, it is no wonder they refer to these changes negatively.”

 

Survey by Maison & Partners commissioned by the Union of Entrepreneurs and Employers: Attitudes and opinions regarding the restriction of trade on Sundays

 

 

Warsaw, 26^th November 2018

 

Position of the Union of Entrepreneurs and Employers on the digital services tax

 

On 21^st March 2018, the European Commission presented a proposal on taxation of digital economy. The Commission presented both a short-term measure – Digital Services Tax (DST) – and a more comprehensive, long-term proposal. In this letter, we will not refer to the latter proposal of a long-term solution regarding the taxation of international Internet operations.

We would like to focus on the short-term proposal. In the light of the lack of international consensus on taxation of digital activities, the European Commission put forward a proposal providing for the imposition of a temporary special-purpose tax – DST – of 3% on the revenues of enterprises from:

• sales of online advertising space,
• data generated by users,
• digital brokerage services that enable users to interact with each other.

The tax to be paid in Member States, where the users are located, would apply to companies whose annual revenues generated on the international market exceed EUR 750 million and EUR 50 million on the EU market. Although the vast majority of members of the Union of Entrepreneurs and Employers – ZPP are companies from the SME sector that do not achieve the revenues assumed by the EC, we believe that the new tax will affect these enterprises. We are afraid that the tax will be transferred through digital platforms to European citizens and entrepreneurs, which in turn will increase their operating costs, reduce their competitiveness, and their ability to innovate.

The SME sector is responsible for most of Poland’s economic growth. There are over 2 million entrepreneurs employing up to 250 employees. They generate over 60% of GDP and are responsible for over 70% of jobs – almost 3 out of 4 Poles work in such companies. For these enterprises, the Internet is not only a way to attract customers, but also is indispensable for their competitiveness. The main benefits achieved by SMEs on the Internet include, among others:

• reduction of costs of locating and purchasing materials, parts and other necessary resources,
• improved efficiency of production and delivery of goods and services by maintaining lower stocks in warehouses or better cooperation between designers of new products working in different (usually remote) locations,
• lower costs and increased customer service efficiency,
• increased competition in many markets, which necessitates the implementation of ever more modern solutions allowing for further reduction of costs and increase in the efficiency of operations,
• faster and more efficient flow of information within the organisation as well as more efficient communication with external partners,
• enhanced flexibility of work, new methods of work management increasing the efficiency of employees,
• new technical and IT solutions improving work in the organisation and reducing infrastructure investments (e.g. remote teams, working in the cloud etc.).

Pursuant to the above-listed benefits, SMEs can compete with the largest market players as well as offer better and more innovative services and products.

The Union acknowledges that although the new regulation is not directly targeted at SMEs, it will affect their activities. We believe that decision makers should consider the risk that the additional costs resulting from the operation of digital platforms will be transferred to European citizens and entrepreneurs. Such an expected increase in costs from operations conducted on the Internet, which is an increasing part of their functioning, will increase their operating costs. This is confirmed by the OECD’s “Tax Challenges Arising from Digitalisation – Interim Report 2018”, which noted that “an interim measure will increase the cost of capital, reducing the incentive to invest with a resulting negative effect on growth”. It also adds that “a measure only applicable to digitalised sectors risks slowing down investment in innovation for those businesses that are subject to the tax or indirectly affected by it”.

This is particularly important in the absence of an international tax agreement. The unilateral imposition of a digital tax on European enterprises, in the absence of such a tax in other parts of the world, will negatively affect the ability of Polish and European companies to compete with non-EU entrepreneurs (e.g. from the Americas, China or India). As a result, if future revenues are taxable, potential investors, e.g. in a technological startup company, will be willing to lower the proposed valuation and the chances of finding an investor in the company will decrease. We would like to point out that the increase in operating costs applies not only to technology companies, but to every entrepreneur who operates on the Internet. The new tax will increase the costs of marketing, advertising or reaching new customers.

The assurance of EU decision-makers concerning the steps taken to prevent the burden being passed on to SMEs is not credible in our opinion. We would like to remind that the entry into force of the General Data Protection Regulation was supposed to hit big Internet corporations, and recent analyses have shown that the largest adjustment costs are borne by small and medium enterprises. Big corporations employing hundreds of well-paid lawyers will always manage. Besides, that it is difficult to mitigate the risk of transferring costs to clients / SMEs was shown in the case of the bank tax, which was also to be a burden for banks and was transferred on to their clients.

Additionally, the Internet economy sector is one of the most innovative and fastest growing parts of the Polish economy. ZPP fears that the increase in costs associated with running a business will negatively affect the innovation of these companies and, as a result, will reduce Poland’s economic growth.

Furthermore, it is estimated that when determining a 3% tax rate, the new tax could generate EUR 5 billion per year for Member States. However, the EC did not present what part of these funds would be allocated to Poland. The Union expresses its concern that the expected fiscal effect will not offset the negative effects on the Polish economy.

In view of the above, we call on the Polish authorities, in particular the Ministry of Finance, which represents Poland in these negotiations, to present analyses how the new burden will affect the SME sector and impact its competitiveness. We believe that any proposals for introducing new business taxes must be supported by credible, public evidence, not only regarding fiscal and budgetary influence, but also analysing the broader economic context, such as competitiveness, innovativeness of the economy and economic growth.

The Union of Entrepreneurs and Employers believes that only after carrying out the above-mentioned analyses, Poland will be able to fully deliberately decide on further steps regarding the so-called digital tax.

 

26.11.2018 Position of the Union of Entrepreneurs and Employers on the digital services tax

 

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