Warsaw, 18^th February 2021

 

Position of the Union of Entrepreneurs and Employers on the advertising tax

 

The Union of Entrepreneurs and Employers is critical of the proposal to introduce the advertising tax and calls for further works on the project to be abandoned. Our motivation is two-fold and consists of the following key factors: we are against sectoral taxes as well as oppose the introduction of any additional burdens during an epidemic or over the course of economic recovery. Meanwhile, the proposed tax would be another new fiscal obligation for companies, introduced in a relatively short time, in spite of the first economic recession in Poland in thirty years.

First of all, we would like to address to the very title of the act itself and the terminology used within. For we are dealing here with yet another case of introducing a new tax without actually calling it a tax. Recently, the “sugar levy” and the “solidarity tribute” had been adopted – this time the new tax was called the “advertising premium”. There can be no doubt whatsoever that the purpose of all the above-mentioned taxes is of a fiscal nature, even if the revenues from these taxes, in theory, are not transferred directly to the national budget, but to individual funds. The proceeds that end up in the National Health Fund support the state budget, as they effectively reduce the necessary subsidies from the budget to the Health Fund. Revenue directed to other funds lessens the pressure on the budget in the areas covered by those funds. The creation of such a structure leads to a real, gradual increase in burdens imposed on Polish citizens (the solidarity tribute is a direct blow to personal income; other taxes are easily passed on to consumers too). Consistent avoidance of calling these taxes by name, raises the suspicion that it is the government’s aim to keep the public opinion convinced that there are no new burdens – a deleterious practice and we as the Union evaluate it unequivocally negatively.

The mode how the draft act is being processed also raises our doubts. At the moment, it is in the “pre-consultation” phase, which is a welcome practice in the case of predictable, exemplary legislative processes. As a rule, however, the subject of a pre-consultation is a document discussing the assumptions of an act, presenting key concepts and intentions of the legislator. Meanwhile, as part of the currently ongoing pre-consultation, opinions are already being given to a specific draft legal act along with an explanatory memorandum. Moreover, one should note that the presented act concerns an exceptionally wide group of entities, both representatives of traditional media and digital platforms or producers (and therefore advertisers) of products considered to be qualified goods. Nevertheless, as part of the pre-consultation, there are only 14 days provided for comments. It would be reasonable for the Ministry of Finance to clearly indicate the further legislative path envisaged for the discussed draft act. If no decision is taken to withdraw from further works, it seems most appropriate to apply the government legislative process and regular public consultations, then prepare a report in which the authors would address the comments and organise a consensus conference with all interested parties. This is the only way one can conceive of a reliable legislative process relating to a draft act of such a broad scope.

As we have mentioned at the beginning, the Union of Entrepreneurs and Employers is against sectoral taxes. We do not at all understand why the legislator chose to impose this new particular levy on the (very broadly understood) advertising industry. Nowhere in the explanatory memorandum to the draft act is the selection of companies to become taxpayers of the new tax backed by argument. This is all the more surprising as, for example, the outdoor advertising sector has experienced a decline in revenues of several dozen percent as a result of the pandemic. Small and medium-sized companies in this industry may not survive additional burdens, especially in the context of a gradually declining market share and a high share of fixed costs in budgets (for instance, long-term lease contracts for outdoor advertising purposes with specific amounts and rates). Similar problems can be noticed, for example, on the television advertising market, where smaller broadcasters may particularly be affected by this new tax, as their revenues are mainly based on advertising.

No justification was also provided in the case of “qualified goods”, the advertising of which is to be subject to a higher tax rate. Merely in the communique accompanying the published draft act, together with the explanatory memorandum, one can find a piece of information that the higher rate will apply to revenues from advertising of goods that are “detrimental to one’s health”. This is a surprising criterion, largely due to the products to which it is to apply. Beverages containing sweeteners are already subject to the sugar tax, the proceeds of which, in accordance with that act, contribute mostly to the National Health Fund. Only in January 2021, beverage producers paid sugar tax to the Fund in the amount of several dozen million zlotys. Therefore, the proposal to re-cover them with an additional levy, also contributing to the National Health Fund, is unacceptable and in practice leads to multiple taxation of the same products.

Similarly, it is difficult to find a rational justification to support the selection of products that are “detrimental to one’s health”, and the authors of the project themselves are far from helpful in this matter, as one can find medicine and dietary supplements there too. The conclusion that medicinal products (legally approved to be sold and purchased) or dietary supplements (subject to registration procedures and supervision of the Chief Sanitary Inspectorate) are goods that are harmful to one’s health is impermissible and devoid of any substantive basis. With regard to the presented catalogue of qualified goods, it is possible to raise the issue of unequal treatment of entities operating on the market by discriminatory and arbitrary justification bereft of substance, by means of higher rates of advertising revenues for certain products.

What is also noteworthy are the (in all probability, unintended) other side effects of the approach proposed by the legislator. Having analysed the structure of the agri-food market, we can claim, for example, that the solutions presented, by leading to an increase in advertising costs, will in a way of their own hamper the competitiveness of branded products compared to products sold under private labels of stores.

Following up on our arguments regarding the sectoral character of the proposed tax, it is impossible not to mention the excerpts of the draft that resemble the assumptions found in the previously proposed so-called digital tax. The Union of Entrepreneurs and Employers had already addressed this concept many a time and our position on this matter has remained unchanged. We believe that there is no rational reason to additionally burden an arbitrarily selected sector of the economy. Especially since there is no evidence that tax avoidance is more commonplace or severe among digital companies than within “traditional” sectors of the economy. Furthermore, one could make an effort to try and justify the argument (basing on publicly accessible data of the Ministry of Finance) that regarding the generated income, some global digital companies pay CIT in amounts even several times higher than the average Polish taxpayers.

Regarding the section of the project on online advertising, a number of aspects specific to this area should also be discussed. In the draft, advertising services rendered on the Internet are vaguely defined as “any digital services relevant to advertisement targeting”. It is an exceptionally broad and capacious description. It would be difficult to precisely determine the scope of digital services related to targeting an advertisement to recipients, let alone determine which of them are “relevant” for the targeting process. Such a definition may make the correct application of the regulation impossible. What raises further doubts is the proposed mechanism of identifying advertising recipients, which would require both taxpayers and tax authorities to process enormous amounts of data, often imprecise and in certain cases (as of now) not at all aggregated. This is another aspect of the regulation that may generate key interpretation disputes that would make its correct application extremely difficult or even impossible.

To summarise the argumentation stated above, tax optimisation schemes and CIT avoidance are common phenomena in a globalised economy and do not relate to any specific sector. If the legislator has observed a problem (one that is actually real) with the structure of the corporate income tax, we propose to consider an initiative in the field of a universal revenue tax that is difficult to avoid.

Ultimately, the project is to introduce an additional burden in the course the fiscal year. Moreover, during a pandemic. Entrepreneurs are once again surprised by a proposal to introduce a new type of levy – as a result, the principle of trust in the state and its laws seems to have been severely violated. Most OECD countries decide to reduce the fiscal burdens during the current pandemic. We have observed with growing concern that the Polish legislator, contrary to this universal trend, would rather aim at the introduction of novel taxes, while simply refusing to call them as such. All in all however, contrary to the claims made in explanatory memoranda and various announcements, the economic cost of all these new burdens will in practice be borne by consumers. Therefore, the purchasing power of wages and the financial situation of households are both going to deteriorate – all this during an epidemic that made the unemployment rate soar to 6.5%.

Furthermore, the short vacatio legis deserves to be strongly criticised. The proposal that the new burden should enter into force later this year, as early as July, is unacceptable.

To sum up, the Union of Entrepreneurs and Employers calls for the works on the new tax to be abandoned. We oppose the introduction of any sectoral burdens, and proposing new taxes during an epidemic is both contrary to our concept of counteracting its negative economic effects as well as stands in opposition to the practices of most OECD countries. Besides, the proposed solutions are discriminatory against specific categories of economic entities. We are open to a discussion about tightening the tax system and we have our own idea how to do it: a universal revenue tax. However, we are against a burden, introduced in an ad hoc manner, on arbitrarily selected sectors, under the misleading banner of “premiums” to support healthcare, culture or protection of historic monuments. Especially since the costs of the new advertising tax will easily be passed on to producers (sometimes of key categories of goods, such as food or medicines), and later to consumers. As with any increase in burdens, its effect will therefore be prices going up and the purchasing power of households going down.

 

See more: 18.02.2021 Position of the Union of Entrepreneurs and Employers on the advertising tax

Warsaw, 25^th February 2021

 

Social partners call to open up the economy while maintaining sanitary regime

 

Organisations of employees and employers, members of the Social Dialogue Council, are calling for the remaining sectors of the economy that remain in the state of lockdown to be opened. At the same time, we call for the implementation of sanitary restrictions adequate to the nature of individual industries. Employees and employers alike are willing to follow the sanitary regime worked out in past months.

The hitherto conduct of both employees and entrepreneurs in times of the COVID-19 epidemic proves that representatives of all industries are able to run their operations at full speed in a prudent manner and taking into account the current state of the epidemic. Recent days have shown that there are no violations of the sanitary regime within industries unlocked in mid-February this year. There are no substantive grounds to differentiate the situation of employees and entrepreneurs from particular industries or sectors.

Decisions consisting merely in restricting business operations of enterprises weaken the Polish economy, which is largely made up of small family businesses. No form of administrative support will replace the entrepreneurs’ relations with their employees, contractors, and consumers – the basis of life in social and economic terms. Therefore, each subsequent day of restrictions is causing irreversible changes. The progressing economic stagnation will result in an increase in unemployment, a spiralling debt of companies, and their subsequent bankruptcies.

For this reason, we call for reason and ask that all employees and companies be allowed to operate on an equal and fair basis. We are ready to act jointly and responsibly, while maintaining all measures whose purpose is to control the scale of the epidemic.

 

See more: Social partners from the Social Dialogue Council call to open up the economy while maintaining sanitary regime

 

fot. Álvaro Serrano / Unsplash

Warsaw, 24^th February 2021

 

EESC Activities Report no. 1/21

Marcin Nowacki, President of the European Enterprise Alliance and Vice-President of the Union of Entrepreneurs and Employers, and Tomasz Wróblewski, President of the Warsaw Enterprise Institute, are members of the European Economic and Social Committee (EESC), an EU advisory body which represents employers’ and employees’ organisations in the EU lawmaking process. We present a summary of their activities in January 2021.

On 27 January, a debate with Maroš Šefčovič, Vice-President of the European Commission responsible for interinstitutional relations and forecasting took place. Šefčovič presented the Commission’s work programme for 2021. Marcin Nowacki raised the issue of passing on the burden of the digital tax on to consumers and SMEs. He asked Šefčovič whether the Commission foresees any measures to evaluate the cost of digital regulations.

In addition, Nowacki raised the question of logistical and legal challenges related to the carbon adjustment border mechanism. He noted that the design of the levy essentially requires a determination of the carbon emissions associated with each product, and asked whether the Commission is prepared for the difficulties arising from disclosing the details of supply chains.

Also on 27 January, a meeting took place with António Costa, Prime Minister of Portugal, who presented the priorities of the current Presidency of the European Council. Tomasz Wróbleski inquired about the legitimacy of ambitious social goals during the economic crisis caused by the coronavirus pandemic.

 Regulatory activity

 EESC members are also active in the regulatory field. The EESC issues opinions on subjects referred to it by the EU institutions. In addition, EESC members can propose the adoption of own-initiative opinions.

Marcin Nowacki has become rapporteur for the EESC opinion on the EU Strategy to harness the potential of offshore renewable energy for a climate neutral future, prepared by the Section for Transport, Energy, Infrastructure and the Information Society (TEN). The Offshore Strategy defines EU priorities for the next 30 years and sets very ambitious targets, according to which the share of offshore wind energy in the EU energy mix in 2050 will exceed 16%.

Useful links:

1. Overcoming the COVID-19 pandemic permanently, as well as the economic recovery;
2. The EU Strategy to harness the potential of offshore renewable energy for a climate neutral future

Additionally, Mr Nowacki tabled three own-initiative opinion proposals. The first opinion proposal concerns support and cooperation of the European Union with Belarusian entrepreneurs, workers and civil society. It aims to provide an expert assessment of the current situation in Belarus from the perspective of civil society and the expectations of Belarusians regarding the actions of the European Union. It could help the relevant EU institutions decide how best to target and direct EU support and, in the long term, lay the foundations for future EU-Belarus relations.

The second proposal for an opinion is related to the assessment of the integration process in light of the Association Agreement between the European Union and Ukraine. The aim of the opinion is to formulate practical recommendations that will bring the views of civil society closer and help the EU institutions to increase the effectiveness of the EU-Ukraine Association Agreement. 

The third proposed Opinion is to assess the impact of the Nord Stream 2 project on the Energy Union. The opinion will gather stakeholder views on the impact of the Nord Stream 2 gas pipeline on the EU’s energy security.

More information about the EESC

What is EESC?

The European Economic and Social Committee (EESC) is an EU advisory body comprising representatives of employers’ and workers’ organisations and other interest groups. It issues opinions on EU issues to the European Commission, the Council of the EU and the European Parliament, thus acting as a bridge between the EU’s decision-making institutions and EU citizens.

What does the EESC do?

It gives the interest groups a formal say on EU legislative proposals. Its three key tasks are to:

• Ensure that EU policy and law are reflect to economic and social conditions in the Member States.
• Engage in dialogue with employers’ and workers’ organizations from all member states.
• Promote European integration and participatory democracy.

What is the EESC composition?

The EESC has 329 Members from all EU Member States, who are appointed for a renewable five-year term of office. Members are nominated by national governments and appointed by the Council of the European Union. They are independent and perform their duties in the interest of all EU citizens. The number of Members per country is in proportion to the country’s population.

How does the EESC work?

The EESC is consulted by the European Parliament, the Council of the EU and the European Commission on a variety of subjects. It also issues opinions on its own initiative.

Members work for the EU, independently of their governments. They meet 9 times a year. Opinions are adopted by a simple majority vote.

Meetings are prepared by the EESC’s specialized sections and the consultative commission on industrial change. The EESC’s specialist think-tanks (known as ‘observatories’) track the progress of EU strategies.

The EESC keeps in touch with regional and national economic and social councils throughout the EU – mainly to share information and discuss particular issues.

See more:  EESC Activities Report no. 1/21

fot. Giampaolo Squarcina / ma lic. Flickr.com

Warsaw, 9^th February 2021

 

Memorandum of the Union of Entrepreneurs and Employers:
Let us abolish the minimum wage in micro-enterprises

 

• Smallest of enterprises are hit hardest by the pandemic. The livelihood of many is at risk. Let us help them by eliminating the minimum wage in micro-enterprises.
• For the same purpose, a simple method of taxing companies generating revenues not higher than PLN 120 thousand annually should be introduced: a uniform 20% revenue tax, covering PIT and social contributions.

The Union of Entrepreneurs and Employers has repeatedly described the destructive impact on the economy of both the pandemic and the restrictions on business activity. Although the statistics are not extremely bad on the macro scale (despite the fact that the first recession in thirty years is a fact), some industries are feeling the effects of the pandemic particularly severely. As it usually happens in most cases, micro-enterprises are exposed to the highest risk of bankruptcies and layoffs. They do not have the financial reserves necessary to survive such a difficult time.

We emphasise the fact that some of the sectors subject to restrictions are to a large extent made up of the smallest of entities. Moreover, some of these companies may be excluded from the possibility of applying for key support instruments due to failure to meet certain criteria on their part (including – above all – the criterion of employment based on a contract). This is to a high degree due to the specific nature of business operations, and mainly a result of seasonality or the team being students or young people just entering the labour market. This is relatively commonplace in the services sector, and this is the exact sector that is most affected by the enforced restrictions.

We fear that the prolonged restrictions (that we have been consistently against) may lead to a collapse of the Polish microbusiness. With this in mind, we believe it to be a reasonable solution to introduce a programme aimed precisely at supporting the smallest entrepreneurs. We propose that this programme consist of at least two elements, which are presented below.

1) A return to the original concept of „small business”

Already a few years ago, the Union of Entrepreneurs and Employers designed a solution to help the smallest economic entities. For them, the obligation to pay flat-rate social security contributions, regardless of their revenue, is associated with a decrease in profitability to a point where it becomes a real challenge. Needless to say, for most entrepreneurs, the flat-rate social contribution is a favourable solution, but in case of the above-mentioned group, the necessity to pay the yearly increasing amounts is a source of real problems in staying in business.

We have proposed that entrepreneurs running a sole proprietorship on the smallest scale (revenues not exceeding several dozen thousand zlotys per year) should be able to settle accounts with the Tax Office and the Social Insurance Institution by means of a uniform, simple levy paid on revenue, including both the income tax and all due contributions.

Our postulates were somewhat reflected in the “small ZUS plus” formula (ZUS – Social Insurance Institution) introduced by the government. This relief has evolved, but even in its current, extended form, it does not take into account all the elements contained in our concept. First of all, as its name suggests, it only applies to social security contributions, while the original “small business” proposal also included income tax. The structure of the solution itself is also different – instead of a simple product of the rate and the income achieved in a given month, “small ZUS plus” requires the determination of the average monthly income from business activity, multiplying it by a factor of 0.5 and – ultimately – comparing the result with the amount of 30% minimum wage and 60% of the forecast average monthly wage.

The more complicated structure aside, the main difference between the implemented concept of “small ZUS plus” and the idea of “small business activity” presented by the Union of Entrepreneurs and Employers is the fact that the discussed relief in social insurance contributions is limited in terms of time: it can only be benefited from for three years over a five-year period.

As a result, the problem of the smallest companies generating low revenue (from which a small amount remains in the owner’s pocket having paid all due public levies) remains valid. The key advantage of the concept promoted by the Union is it being a systemic solution. Henceforth, we believe that the minimum plan is to resign from the time restriction on the “small ZUS plus”. Ultimately, one should strive to implement the original idea to regulate “small business”, so that the smallest entities can settle accounts in a simple way, and their burden is directly dependent on the revenue generated. The rate of such a tax should come up to approximately 20%. For a considerable part of the smallest enterprises, this will be a lower total burden than the cumulative amounts of social security and personal income tax contributions.

2) Minimum wage abolition in micro-enterprises

Despite the fact that the labour market has coped relatively well with the problems caused by the coronavirus epidemic, the first obvious signs of its weakening condition are already visible. Unemployment registered in January reached the level of 6.5%, the highest in several years. The number of new job offers is also gradually decreasing. In the autumn of 2020, their number was on average over 25% lower than the year before.

It might be worth to emphasise the fact of partial regionalisation of the problem of unemployment, resulting from, among others, a relatively stronger impact of the pandemic on, for example, resorts. For instance, in the Kołobrzeg poviat, the registered unemployment rate increased due to the pandemic threefold (sic!).

One also has to note that industries subject to restrictions (food services, hotels, pubs, cultural institutions etc.) are sectors in which a significant part of youth, including students, traditionally gain their first working experience. Layoffs resulting from, for example, an administrative ban on conducting business activity are a lot harsher for these employees as it is much more difficult than in normal circumstances to find an alternative job. In the world before the COVID-19 pandemic, a young person starting a career e.g. in a restaurant could easily find other employment in a bar, a cinema or a hotel, if necessary. In the new reality marked by a lockdown, their possibilities are not endless.

The conclusions stated above are increasingly often confirmed by experts who claim the coronavirus epidemic affects young people active in terms of work the most. This is an observation not limited to Poland, but valid globally, especially since most countries decided to introduce similar bans or restrictions.

Bearing in mind the arguments listed above, we believe that it is worth putting safety measures in place in order to mitigate the risks for the labour market resulting from the difficult situation caused by the pandemic. Presently, many entrepreneurs still keep jobs, contrary to the economic calculation. It will not be long, however, before ruthless calculation will force them to cut jobs, and this may rapidly affect industries whose activities are limited. As a consequence, a return to double-digit unemployment rates unseen in Poland for years is possible. In circumstance like those, it would be difficult for young (inexperienced) and low-skilled people to find employment.

To prevent this scenario from happening, we propose a bold move to be considered: the introduction of a threshold based on enterprise size, from which the minimum wage provisions would apply. To a certain degree, a similar solution exists in the United States, where the federal minimum wage regulations apply to companies with annual revenues exceeding USD 500,000. In Poland, the starting point of reference could be micro-entrepreneurs. The discussion on the threshold beyond which an entrepreneur would be bound by the provisions regulating the minimum wage, however, should remain open.

To sum up, the Union of Entrepreneurs and Employers would like to emphasise that the pandemic may lead to the collapse of micro-entrepreneurship in Poland. It is difficult to evaluate the scale of this phenomenon or its duration at this very moment, but there is no doubt that a proposal to introduce a regulatory support programme for micro-enterprises is a justified course of action in order for them to survive this difficult time and to recover after the epidemic. We believe that both concepts presented above: the return to the idea of “small business” and the exemption of the smallest of companies from the scope of the provisions regulating the minimum wage, have the potential to serve this purpose.

 

See more: 09.02.2021 Memorandum of the Union of Entrepreneurs and Employers: Let us abolish the minimum wage in micro-enterprises

Warsaw, 10^th February 2021

 

Statement of the Union of Entrepreneurs and Employers on the media tax

 

The Union of Entrepreneurs and Employers has for years been critical of all sectoral taxes. The proposed media tax is no exception from that rule, and therefore Union strongly opposes its introduction.

Furthermore, the Union opposes any and all new burdens introduced during the fight against the coronavirus epidemic. The media tax is another one of them. In our view, this is yet another reason to oppose its introduction.

By introducing sectoral taxes, the government as a rule refers to the necessity to impose burdens on those companies that apply tax optimisation schemes and, as a consequence, avoid income tax. This argument is also used to justify the idea of a tax on advertising, also known as the media tax.

If the above-specified justification actually were the legislator’s intention, the Union of Entrepreneurs and Employers wishes to remind that it has for years been proposing a real remedy to the problem of tax avoidance: a simple tax system based on a revenue tax that is difficult to avoid as well as easy to calculate and collect. A complete set of information regarding our views in this regard along with a concept of a comprehensive tax system reform are available on our website www.podatkiminus.pl.

If the state really wants to combat tax optimisation, a revenue tax should be introduced instead of adding sectoral taxes whose consequences the consumers will have to suffer.

 

See more: 10.02.2021 Statement of the Union of Entrepreneurs and Employers on the media tax

 

Fot. Tierney / Adobe Stock

Warsaw, 11^th February 2021

 

“Lockdown Loss Meter” hanged in Warsaw. What amount does it show?

 

On the façade of the Warsaw-based pub “Świetlica Wolności” (The Freedom Lounge), several screens making up the Lockdown Loss Meter were hanged. In total, since March 2020, the Polish economy has already lost over PLN 30 billion as a result of the lockdown.

The unfreezing of the economic – scheduled for 12^th February 2021 – is only partial, as it concerns cinemas, hotels, theatres and ski slopes, and temporary, because the return to the restrictions after 2 weeks is a real possibility. What this means is that the Polish economy is still struggling with a creeping lockdown. The Lockdown Loss Meter shows in real time the cumulative economic loss in terms of lost income since the first lockdown in the spring last year, as well as it informs in detail about the losses in four critical industries that either were or are ‘frozen’ (restaurants and related businesses, fitness, entertainment, hotels). The Meter is going to be updated depending on the current changes in the sanitary regime. Its creators, the Warsaw Enterprise Institute and the Union of Entrepreneurs and Employers, believe the losses incurred as a result of the lockdown were unnecessary The economy should function continuously provided a stricter sanitary regime is maintained.

The calculations by WEI and the Union indicate that the spring lockdown caused the greatest damage to the economy. At that time, Poland’s GDP decreased by 0.74%. The decrease was mainly induced by restrictions in retail trade and the related closure of shopping centres and agri-food markets. The drop in value added generated by the retail trade sector reached PLN 5.47 billion. Being an indirect effect, further drop values also occurred in sectors related to retail trade: wholesale trade – PLN 4.10 billion, industry – PLN 0.45 billion, energy – PLN 0.17 billion, and transport – PLN 0.21 billion. In the case of individual services, such as hairdressers and beauticians, losses resulting from the spring lockdown amounted to PLN 1.03 billion. Such sectors as entertainment and culture, tourism, sports and recreation, air transport and hotel industries also recorded steep declines.

According to preliminary estimates of the Central Statistical Office of Poland, the gross domestic product (GDP) in 2020 was lower in real terms by 2.8% compared to 2019. Of course, this decline is not only the result of economic restrictions, but also of a decline in foreign demand and consumer moods as well as increased sanitary precautions. However, the Meter – whose operations are based on the input-output model – sifts these phenomena away, focusing only on the losses caused by the lockdown. It takes into account not only the income lost in frozen industries, but also the indirect impact that freezing them had on other sectors.

The Meter is also available online: http://licznik.wei.org.pl/

It will be taken down when the last industry is ‘unfrozen’ and all lockdown policies finally abandoned.

 Warsaw, 5th February, 2021

 

Debrief: ‘Protectionism within the European Union and how to tackle it’

 

The single market is one of the greatest achievements of the European Union. Nevertheless, independent studies conducted by the European Commission and the Union of Entrepreneurs and Employers show that protectionism is a serious problem affecting the majority of entrepreneurs and hindering the development of the single market. Elimination of existing barriers could attract an additional €17 billion of investment per year and generate another 1.3 million jobs – keys to restoring the competitiveness of the European economy in the aftermath of the pandemic. Both studies show administrative practices (i.e. requirement to present additional certificates) rank as top protectionist measures. While most of them can be addressed through prohibitions established under the EU law, the current legal framework seems insufficient to cope with all the problems of the single market. During the webinar, distinguished panelists brainstormed solutions on improving the quality of the internal market.

The discussion which took place on 5 February 2021 via ZOOM, gathered Mr. Horst Heitz, the Chair of the Steering Committee of the SME Connect as well as 3 members of the European Economic and Social Committee – Ms. Jana Hartman Radová, the Head of Brussels Office of Confederation of Industry of the Czech Republic, Mr. Marcin Nowacki, the President of the European Enterprise Alliance and Mr. Tomasz Wróblewski, the President of the Warsaw Enterprise Institute.

Research conducted with the participation of over 1150 entrepreneurs from Poland, the Czech Republic and Slovakia has shown that almost 40% of the surveyed companies have experienced encountered protectionist measures within the European Union. Administrative burdens as well as the requirement to present additional documents (certificates, attestations etc.) are some of the most common practices encountered.

Most of these practices can be addressed through a wide range of restrictions contained in the European law as well as the rich jurisprudence of CJEU. However, the current legal framework does not seem to be sufficient to address all the problems of the common market for several reasons. For instance, the current regulations are insufficient to address the problem of greater meticulousness in enforcement of laws in case of foreign companies.

One of the Union of Entrepreneurs and Employers ideas for improvement of the quality of the internal market is the introduction of a horizontal direct effect on the free movement of goods. This will open the path for these provisions to be invoked in disputes between private persons before national courts, thus revolutionizing the functioning of the common market and enabling the restoration of competitiveness of the European economy.

 

Watch our webinar: “Protectionism within the European Union and how to tackle it”. 

 

fot. Giampaolo Squarcina / ma lic. Flickr.com

Warsaw, 20^th January 2021

 

Memorandum of the Union of Entrepreneurs and Employers on the impact of restrictions on coronavirus transmission: opening the economy is associated with a moderate risk of increase in the number of infections

 

Abstract

In this document, we summarise the results of two independent studies that look at the effectiveness of government restrictions on reducing coronavirus transmissions. These studies show that among the non-pharmaceutical interventions used, the ban on public gatherings of more than ten people and the closure of schools both have the greatest impact on reducing the number of cases. Meanwhile, the impact of restrictions on economic activity, such as food catering industry or services, is limited. Similarly, in terms of easing restrictions, a significant increase in the number of infections was recorded only in the case of reopening schools and allowing public gatherings. The results of the reserach discussed compel to question the validity of the order of easing the restrictions adopted by the government, within which it was decided to partially reopen school, while maintaining restrictions for business activity.

The first coronavirus case was diagnosed in December 2019. Thirteen months later, a total of nearly 100 million coronavirus cases have been reported and 2 million people have died of COVID-19.

To contain the spread of the new virus, governments around the world imposed a number of restrictions on economic and social activity. Restrictions, formally known as non-pharmaceutical interventions, unfortunately have severe consequences. In Q2 2020, which saw the majority of restrictions, the GDP of the European Union fell by 13.9% y-o-y, and unemployment increased by 2.7%. These were the sharpest recorded economic declines since measurements began in 1995.

The pandemic came as a shock to countries and economies around the world. However, data is collected over time that allow for the evaluation of the effectiveness of specific actions. Two independent studies can be cited as examples thereof. The first was conducted by a team of researchers led by Jan M. Brauner Ph.D. from the University of Oxford and published by the American Association for the Advancement of Science. It examines the effectiveness of restrictions introduced by the governments of 34 European and 7 non-European countries in the period from January to May 2020 [1].

The other study, conducted by a group of researchers appointed especially for the purposes of scientific evaluation of the evidence for the coronavirus pandemic from the Usher Network for Covid-19 Evidence Reviews at the University of Edinburgh, UNCOVER for short, examines the effectiveness of measures introduced between 1^st January and 1^st July 2020 in 131 countries. [2] Most importantly, scientists from the Usher Institute scrutinised not only the effectiveness of restrictions in reducing viral transmissions, but also the impact of easing restrictions on renewed outbreaks of the disease.

The most important conclusions by researchers led by Brauner are the following:

• the only measures with a significant impact on infection reduction (over 35%) are the closure of schools and colleges, and the restriction of gatherings to 10 people or less;
• the closure of businesses offering non-basic products and services had a moderate impact on reducing the number of infections (17.5-35%);
• stay-at-home orders proved to have little effect (less than 17.5%) in reducing the number of cases;
• the closure of bars, restaurants and nightclubs had little effect on virus transmission in 42% of cases and moderate in 58% of cases.

In terms of the effectiveness of stay-at-home orders, one should keep in mind that these measures were usually imposed last, following other restrictions. Brauner et al. took that into account and calculated that in the event of early school closures, a ban on mass events and the closure of some enterprises, the stay-at-home order had little effect on a further reduction of coronavirus transmissions.

Turning to the main conclusions of the team at the Usher Institute, the following points should be mentioned:

• the introduction of a ban on mass events is associated with the biggest drop in coronavirus transmissions;
• in terms of easing the restrictions, a significant upward trend in infections was recorded only after the relaxation of restrictions on school closings and the ban on public gatherings for more than 10 people;
• the reopening of schools is associated with the highest increase of cases diagnosed on the 7^th and 14^th day after restrictions were eased;
• the possibility of organising gatherings of more than ten people is associated with the largest increase on the 28^th day after the ban was relaxed.

The following three basic conclusions can be dound in both studies.

First of all, the most effective means of reducing viral transmission appears to be limiting public gatherings and the on-site activities of educational institutions.

Secondly, the closure of economic activities such as the food catering industry and services has only a limited (low to moderate) impact on the number of infections.

Third, the greatest increase in the number of cases is related to the easing of restrictions on public gatherings above 10 people and the reopening of schools.

The research results summarised above question the validity of the strategy chosen to fight the coronavirus. Maintaining restrictions on economic activity, which have at most a moderate impact on the increase in the number of infections, is associated with an enormous economic and social cost. In spite of the aforementioned conclusions, the plan to lift the restrictions, presented in November, was abandoned – the economic lockdown is still in force, and at the same time, it was decided to partially reopen schools, even though research indicates that it is associated with a significant risk of an increase in the number of infections.

Considering the data and research results presented above, we once again call for the opening of the economy and a revision of the strategy to combat the coronavirus. Restrictions on economic activity have at best a moderate effect on the number of infections. Meanwhile, the prolonged lockdown increases the risk of a massive wave of bankruptcies and layoffs, the negative economic and social costs of which are currently impossible to predict and estimate.

Bibliography:

You Li, Harry Campbell, Durga Kulkarni, Alice Harpur, Madhurima Nundy, Xin Wang, Harish Nair, for the Usher Network for COVID-19 Evidence Reviews (UNCOVER) group, The temporal association of introducing and lifting non-pharmaceutical interventions with the time-varying reproduction number (R) of SARS-CoV-2: a modelling study across 131 countries, in Lancet Infectious Diseases 2020, available online: https://www.thelancet.com/action/showPdf?pii=S1473-3099%2820%2930785-4

Jan M. Brauner, Sören Mindermann, Mrinank Sharma, David Johnston, John Salvatier, Tomáš Gavenčiak, Anna B. Stephenson, Gavin Leech, George Altman, Vladimir Mikulik, Alexander John Norman, Joshua Teperowski Monrad, Tamay Besiroglu, Hong Ge, Meghan A. Hartwick, Yee Whye Teh, Leonid Chindelevitch, Yarin Gal, Jan Kulveit, Inferring the effectiveness of government interventions against COVID-19, in Science Magazine 2020, available online: https://science.sciencemag.org/content/early/2020/12/15/science.abd9338

 

[1] https://science.sciencemag.org/content/early/2020/12/15/science.abd9338

[2] https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(20)30785-4/fulltext#articleInformation

 

See: 20.01.2021 Memorandum of the Union of Entrepreneurs and Employers on the impact of restrictions on coronavirus transmission: opening the economy is associated with a moderate risk of increase in the number of infections

 

ProEXR File Description

Warsaw, 12^th January 2021

 

Trade tax was to level the playing field, but in the electronics/household appliances industry, only Polish companies will pay it

 

The trade tax had two goals: to level the playing field in terms of competition between smaller and larger companies, and to indirectly counteract the expansion of foreign retail chains in Poland. In practice, however, in the electronics and household appliances industry, only Polish companies will pay this tax. Their biggest competitor, the German corporation Media Markt, divided its stores into separate companies and will not pay a penny. This proves that the trade tax will not only fail to achieve the goals intended by the legislator, but will also be a burden to domestic enterprises, thus worsening their position on the market.

The Union of Entrepreneurs and Employers has repeatedly appealed to the government not to introduce any new taxes during the pandemic. We stick to our position and call for the collection of trade tax in 2021 to be stopped. Moreover, the Union has consistently opposed the introduction of sectoral taxes, as well as reminded that the long-term solution to the problems related to tax avoidance lies in a profound reform of the tax system and should consist in the elimination of the corporate income tax and replacing it with a revenue tax.

The effects of introducing such a trade tax are clearly evident on the example of the electronics, household appliances and IT industry. Its characteristic feature is the disproportion between suppliers (global concerns) and sellers (local enterprises). Profitability is in the range between 2 and 4%. The second trade tax rate in the amount of 1.4% will consume a significant part of the profit of household appliances sellers. This in turn will worsen the competitive equilibrium between Polish and foreign enterprises, especially since the latter group will not pay that tax at all.

Discussing the effects of the introduction of the trade tax from 1^st January 2021, it is impossible to ignore the economic consequences of the coronavirus pandemic. It is the position of the Union of Entrepreneurs and Employers that it is incomprehensible and unacceptable to add burdens on enterprises during such an unprecedented crisis. Furthermore, increasing the burdens will also lead to an economic slowdown that we cannot afford at the moment.

In the years 2021-2027, Poland will receive funds hitherto unseen. In the new budget perspective, Poland will receive EUR 160 billion from EU funds. EUR 57 billion will come from the Reconstruction Fund created to help member states face the challenges of the coronavirus pandemic. By comparison, over 16 years of EU membership, Poland received approx. EUR 181 billion. In the light of such enormous funds, it seems obvious that the budgetary pressure to introduce new taxes should be much lower, and the Polish government should not introduce new burdens on entrepreneurs struggling with the effects of a crisis.

 

See report for more: 12.01.2021 Report by the Union of Entrepreneurs and Employers: Effects of the introduction of the retail sales tax from 1^st January 2021

Warsaw, 23^rd December 2020

 

APPEAL OF THE UNION OF ENTREPRENEURS AND EMPLOYERS FOR A 12-MONTH-LONG MORATORIUM ON NEW BURDENS

 

• The year 2020 has been the most difficult period for Polish companies in many years. Within a few months there have been three giant blows to businesses: a tight lockdown in March-May, reduced demand in “social sectors” in June-August, finally a second wave of the epidemic that started in September, which resulted in the ongoing re-closure of a significant part of the economy.
  
  
• The ability to adapt to the new conditions and the liquidity aid provided by the government helped entrepreneurs survive the difficult period in the spring. Unfortunately, the following months seriously undermined the stability of some industries, and the second lockdown poses an enormous threat to all companies in Poland.
  
  
• Examples of other OECD member states, such as Australia, Sweden, the Czech Republic or Germany, show that in response to the crisis caused by the coronavirus pandemic, a significant part of governments have decided to cut taxes and reduce administrative burdens.
  
  
• The Australians are pursuing a consistent programme of tax cuts, the Swedes plan to lower PIT and social security premiums, while the Germans and the Czechs have decided to cut VAT. Similar trends (towards lowering burdens) are also visible in the policies of the United States.
  
  
• We regret to observe that Poland has not joined this trend. Instead of striving to reduce the burden and to deregulate, Poland has decided to introduce solutions unfavourable for business. These include, for example, the taxation of limited partnerships with CIT, the introduction of the sugar tax, the amendment to the “rain tax” or the restrictive implementation of the audio-visual directive.
  
  
• Studies show that the willingness of Polish companies to invest has been the lowest in years. According to the “Busometr” survey by the Union of Entrepreneurs and Employers, only 32% of entrepreneurs plan to make any investments in the coming months. On the one hand, this is a result of the uncertainty related to the spread of the epidemic, and on the other – a consequence of the lack of regulatory stability and the introduction of new, unfavourable regulations, mentioned above.
  
  
• Public opinion surveys show that the majority of entrepreneurs (68% according to Kantar Global Business Compass) believe that the effects of the pandemic are severe for enterprises. According to a poll carried out by CBOS at the turn of May and June, every tenth respondent had to limit operations and reduce employment in the company.
  
  
• The impact of the epidemic is also visible in objective economic data – Poland’s seasonally adjusted GDP shrank by 7.9% year-on-year in the 2^nd quarter of 2020. Further reductions in economic activity in the fall and winter will worsen the results for the whole year.
  
  
• We would like to make it clear that the next twelve months constitute the worst possible period to introduce new burdens. Companies are facing the consequences of the epidemic, lowered demand, and the effects of a lockdown – additional taxes, increased levies or the introduction of new administrative obligations can be a fatal blow to many companies.
  
  
• The consequences of introducing additional burdens in such a difficult economic time may be far-reaching and severe. They may concern both the labour market and the investment rate, economic activity, and ultimately – the affluence of the Polish nation. One should remember that bankruptcies of companies or significant drops in their revenues translate into a reduction in employment or a decrease in wages. This, in turn, translates directly into the deterioration of the situation of employees and their families. The lack of new burdens in the difficult time of the epidemic is therefore a postulate not only pro-business, but also pro-employee and pro-social.
  
  
• Bearing in mind all of the above, we urge the government to adopt a 12-month-long moratorium on all new burdens, including, in particular, those of a tax and para-tax nature, such as the sugar tax or the retail sales tax. Polish businesses must have a chance to survive and recover after the crisis caused by the epidemic. Should the new burdens make it impossible, the scale of the negative impact on the economy may be difficult to predict, and the cost of these burdens will certainly be higher than that caused by the postponement of new levies.

 

See: 23.12.2020 Appel of the Union of Entrepreneurs and Employers for a 12-month-long moratorium on new burdens

 

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