Warsaw, 21^st February 2019

 

The Union of Entrepreneurs and Employers on the eurozone – there is no need to hurry

 

The Union of Entrepreneurs and Employers has published a report on Poland’s entry into the Euro zone – it analysed probable profits and losses related to the possibility of Poland joining the Monetary Union and replacing the zloty with the euro. As a result of this analysis, scepticism is recommended as to the plans for the rapid introduction of the single market currency.

The study reminds the reader of the motives behind the creation of the euro. “From the very beginning, the euro was a political project, not an economic one. The fall of communism resulted in a political vacuum. Living in the shadow of the Soviet-American conflict, Western Europe faced several dilemmas, including the issue of solving the problem of a divided German state. Other European powers, primarily France, concluded that the consent to Germany’s re-unification was conditioned by their adoption of the single European currency. They feared the strength of the German mark,” remembers professor Robert Gwiazdowski, author of the report.

Due to the fact that non-economic factors were behind the introduction of the euro, many economists believed that this experiment could not succeed. “Nobel Prize winner Milton Friedman predicted that the currency would last for about 10 years. In fact, he was not mistaken, as it was after a decade when the eurozone suffered from a big crisis, which would end with the collapse of the project, had it not been for the European Union’s leading states, obviously motivated by political factors,” adds Robert Gwiazdowski.

The public opinion is convinced that Poland has committed to become a member of the euro area. Although this is seemingly true, it is worth recalling that no date has ever been set. Moreover, the accession to the eurozone was to be based on the criteria agreed to in Maastricht, which are no longer valid today. The report proves, therefore, that there is no legal possibility of pressuring Poland in the context of joining the Monetary Union.

In Poland, the discussion with regard to joining the eurozone resembles the one in Western Europe when the concept of the new currency were merely created. “The voices calling every now and then for the euro to be introduced as soon as possible are only political actions, without any justification. The wealth of nations is not the result of the colour of the paper one uses in a store to pay,” said Cezary Kaźmierczak, president of the Union of Entrepreneurs and Employers.

The report names a number of risk that could impact the Polish economy in the case of an ill-considered introduction of the euro. Interest rates set by the European Central Bank may turn out too low for Poland, which is a country with low GDP and a relatively low level of prices, which in turn may result in macroeconomic imbalances, including a real estate bubble. Furthermore, the Polish economy would be deprived of today’s trump card on the European market, namely low labour costs. Poland is not ready yet to compete with Western countries in other fields, e.g. with the degree of innovativeness.

The report also point to considerable differences betwen the Polish economy and the economies of euro area members, e.g. greater flexibility of the labour market or low development of the rental market. The common monetary policy may not be adapted to the cyclical situation in our country. When functioning within the Monetary Union, it is also more difficult to react effectively to the crises encountered.

“In a world of diversified economies, a common currency will either have an inflated value for some or an underrated for others. Strong countries will therefore become stronger, whereas weaker ones will become even weaker. Therefore, we have to first become a strong economy, and only then can we think about adopting a common currency,” says Tomasz Wróblewski, president of WEI.

 

21.02.2019 Report of the Union of Entrepreneurs and Employers: The Euro. A legal and economic analysis of the profits and losses of Poland’s accession to the euro area

 

Fot. PublicDomainPictures/pixabay.com

Warsaw, 19^th February 2019

 

Union of Entrepreneurs and Employers on Sunday trade in Europe:
Polish regulations extremely restrictive

 

Free trade on Sunday rather than any restrictions is the standard in Europe, and Polish regulations in this area, in the target shape, are extremely restrictive – these are the most rudimentary conclusions from the report by the Union of Entrepreneurs and Employers on trade on Sundays in Europe.

The postulates of limiting trade on Sundays are in Poland nothing new under the sun. This topic would come back every now and then to the public debate over the last several years, but it did not materialise in the form of specific provisions until November 2017, when the law on limiting trade on Sunday was passed.

“From the very beginning, the Union of Entrepreneurs and Employers was critical about the draft law limiting trade on Sunday,” says Marcin Nowacki, vice-president of the Union. “We pointed out that such a sectoral form of regulation would in no way serve the majority of employees. We also emphasised that it certainly would not help small shop owners, but rather the opposite, meaning it would lead to a wave of bankruptcies. Today we see that we were right.”

Regardless of the views on the regulations in force since March 2018, it should be noted that the supporters of these restrictions often refer in their argumentation to examples of other countries in the European Union where allegedly analogous provisions apply. Meanwhile, the Polish legislator, limiting trade on Sunday, decided to take a course directly opposite to European trends.

“One must stress the fact that most European Union member states do not restrict trade on Sundays in any way,” said Katarzyna Włodarczyk-Niemyjska, director of the Law and Legislation Department of the Union of Entrepreneurs and Employers. “Those countries that had decided to introduce such restrictions, did so a long time ago, in completely different socio-economic conditions and generally are now withdrawing from this solution and liberalising the law. In turn, Hungary, which decided to undertake such an experiment relatively recently, immediately, because after only one year of the new regulations being in force, returned to free Sunday trade.”

At the same time, the Union’s experts point out that the minority of countries – that decided to limit trade on Sundays – introduced a variety of solutions. The almost total ban, which is to be in force in Poland from 2020 on, is a negative phenomenon on a European scale. It turns out that the legal landscape in the area of limiting trade on Sundays is much more complex than the simple dichotomy: “total ban” or “total freedom”.

“In the case of countries that restrict trade on Sunday, the standard from which basically only Poland breaks out is to use a variety of mechanisms mitigating the negative effects of such regulations,” says Jakub Bińkowski, secretary at the Department of Law and Legislation of the Union of Entrepreneurs and Employers. “Amongst these solutions, one can name, for instance, particular zones where trade on Sunday is allowed, the transfer of certain competences in this regard to local governments or extensive subjective exclusions relating, for example, to the store’s area.”

Spanish solutions constitute a series of interesting examples implemented to mitigate the risk arising from restricting trade on Sundays, as they combine all of the above-mentioned mechanisms. The Union of Entrepreneurs and Employers consistently postulates the withdrawal from the Sunday trading ban and replacing it with a Labour Code guarantee of two free Sundays a month for all full-time employees. This way, all sectors of the economy will be able to function normally on all days, while achieving the basic goal of the act on restricting trade on Sunday.

 

Fot. TheAndrasBarta/pixabay.com

Warsaw, 11^th February 2019

 

50 million inhabitants of Poland. Real actions, not just dreams

 

If Poland is to develop and build its position in Europe of a significant state, it must also be strong in the number of inhabitants. This is the main conclusion of the report of the Union of Entrepreneurs and Employers and the Warsaw Enterpise Institute. The authors wonder if in 30 years, Poland can be inhabited by up to 50 million people. About 11.5 million people more than today and more than 16 million more people than the demographic forecasts assume.

In Poland, for many years now, too few children are being born to ensure replacement of generations. Not only because the following generations are less numerous than the previous ones, but also because an increasing number of people are emigrating from Poland. There are already over 2.5 million Poles living abroad. We live increasingly longer, but there is ever fewer of us. From a young society, 20 years ago, we have become a society of older people.

Since the beginning of this decade, the number of inhabitants of Poland has stopped growing. If within 20-30 years we fail to reverse this trend, Poland has no chance of catching up with the West in terms of prosperity and economic development. According to the forecasts of the Central Statistical Office of Poland, even in case of the most optimistic scenarios of the Family 500+ programme’s impact on demography, the fertility rate in 2050 will amount to 1.85. The social policy that is being carried out may slightly reduce demographic risks, but it will not reverse the trend. The fertility rate must increase to at least 2.1.

In order to significantly increase the number of inhabitants of Poland, it is necessary to change the philosophy of functioning of the whole country. To this end, the Union of Entrepreneurs and Employers together with Warsaw Enterprise Institute propose a comprehensive program of demographic reforms in three points:

1. A reasonable and effective pro-family policy, the aim of which is to promote families in Poland in the 2 + 2 and 2 + 3 models. To achieve this, the following actions are necessary:

• increase in the number of financially accessible nurseries, kindergartens, school and out-of-school dayrooms,
• making labour law more flexible so that more people benefit from part-time work and other flexible forms of employment,
• review of parental and social benefits so that they simultaneously protect families in emergency situations and serve as guarantee for employers that employees have other options than taking advantage of employment to obtain financial benefits,
• creating an effective system of home construction executed by both the local governments and private companies in partnership,
• strengthening the position of local government as an institution that supervises and builds social infrastructure in the regions.

2. Creating conditions conducive to the return of emigrants from abroad, which will be achieved thanks to:

• reducing the tax burden on taxes and quasi-fiscal charges,
• creating an institutional order that ensures economic freedom and the ease of doing business,
• ensuring the possibility of working in accordance with education, with remuneration adequate to qualifications not only in major cities but throughout the country,
• reduction of construction costs by eliminating the bureaucracy in housing construction.

3. Smart absorption of immigrants, above all from countries neighbouring Poland, as a result:

• simplification of procedures related to legal employment of foreigners to the highest possible degree,
• creating conditions for residence of immigrant families in Poland,
• creating a fast track to recognise professional qualifications of immigrants,
• introduction of promotional activities, including promotion of Polish for foreigners and Polish language courses,
• creating a transparent procedure for obtaining permanent residence cards for settlement in our country.

The full and unabridged report is available for download at zpp.net.pl (materials).

******

The report was created as part of the “Agenda Poland” project, a joint venture of the Warsaw Enterprise Institute and the Union of Entrepreneurs and Employers, whose aim is to prepare a strategy for Poland’s development, systemic solutions, and improvement of the law in selected areas.

 

So far, the following publications were published in the series:

Strategy of legal and institutional competition of Poland

The Polish Security Strategy

Conceptual of a new tax system in the field of direct and indirect taxes. Wages + Taxes –

Measurable justice. Judicial reform project

School for life. Who will pay for our pensions?

Citizens’ pension. Safe old age, higher wages

The draft Constitution of the Republic of Poland

 

Fot. Free-Photos/pixabay.com

Warsaw, 8^th January 2019

 

Positive Plusses, Negative Plusses – summary of Polish legislation 2018

 

In the ranking determining legal acts of the best quality adopted in 2018, the first place was taken by the Minister of Entrepreneurship and Technology Jadwiga Emilewicz. As part of the “Negative Plusses” platform, throughout the entire previous year, we assessed acts of law that became part of the Polish legal system. Each of our assessments was preceded by an analysis of a law in question in terms of its impact on the economy, functioning of the state or personal freedoms. The overall quality of our legislation is at a similar level as it was for 2017.

 

METHODOLOGY

At the moment of its entry into force, an act is assessed on a scale of 1-5.

1. Very harmful: when the law does not have any positive features;
2. Harmful: when the law contains some positive elements, yet in its entirety we evaluate it negatively;
3. Neutral: when there’s an equilibrium between the positive and negative features of the act;
4. Good: when the act goes in the right direction, but it needs to be fine-tuned or has a few shortcomings;
5. Very good: the new act is complete, we have no objections against it.

We assign each of the acts to a specific politician, field or area, and ministry. In individual categories, we calculate the arithmetic average based on all individual assessments.

 

DESCRIPTION OF THE INDEX

Last year, Warsaw Enterprise Institute assessed 61 acts, more than half as many as the year before. However, the average assessment of Polish legislation, which is 3.3, remains unchanged.

In most areas, including the economy or the justice system, there was little legislative improvement. However, a significant drop was noted in case of tax law, where legal acts that are considered to be harmful or very harmful prevail, e.g. the introduction of the third tax threshold in the form of “a solidarity tribute” or the increase in the emissions fee.

Jadwiga Emilewicz, the Polish Minister of Entrepreneurship and Technology, tops the ranking for 2018 with an average of 4.2. It was her ministry that created, among others, the act on the succession of enterprises which facilitates the operations of businesses after the entrepreneur-owner’s death. She also coordinated the completion of legislative works on last year’s act of key significance, the so-called “Constitution for Business”, i.e. the act on entrepreneurial law.

Jan Ardanowski, Poland’s Minister of Agriculture, also deserves recognition. What should be highly appreciated are the facilitations for farmers that he introduced in direct sales or the incentive system for establishing agricultural cooperatives. For the previous year, his ministry received an average equal to that of the Ministry of Entrepreneurship and Technology. His predecessor Krzysztof Jurgiel contributed to this assessment as it was during his terms when the act on contracts for harvest-time helpers, recognised as a very good law, was adopted. Andrzej Adamczyk, the Minister of Infrastructure, received the same assessment as Minister Ardanowski. In his case, however, newly introduced provisions of the law still have to translate into effective government action, because they concern future investments: the Central Communication Port and the local government roads fund.

On the completely other side of the scale are Krzysztof Tchórzewski and Henryk Kowalczyk, Ministers of Energy and Environment respectively. The former is responsible, for instance, for the act increasing the emissions fee or the act on freezing electricity prices that was passed at the end of 2018. The latter approved the act that strikes at the civil liberties of hunters and introduces an interventionist wooden house building program.

Other ministers failed to prepare any significant acts of law in the previous year or prepared too few of them to be included in this ranking.

Our assessments show a qualitative difference between laws that were created within the government in relation to those created by the parliament, authored by groups of MPs. All government acts obtained an average of 3.43, while parliamentary acts barely that of 2.9.

On average, the legislative activity of the President of the Republic of Poland was assessed at 3.5. Good acts, like the one that facilitates the recovery of money after an erroneous transfer, combined with worse ones, such as the act on free legal assistance. Last year, one project created as a result of a legislative initiative was also adopted. It was the act limiting trade on Sundays and it received the lowest possible rating in our ranking.

The whole ranking, starting from 2017, is available at www.plusyujemne.pl and is presented in an up-to-date manner on the communication channels of the Warsaw Enterprise Institute as well as of the Union of Entrepreneurs and Employers.

 

Fot. geralt/pixabay.com

Warsaw, 22^nd January 2019

 

Decreasing support for trade ban

 

“The number of people supporting the Sunday trade ban fell in December by 3 percentage points compared to the results of the November survey and currently amounts to 28%. As many as 71% of Poles do not want politicians to tell them how to spend their weekends. The percentage of complete opponents of limiting trade on Sundays in the December wave is the same as in November – 39% of Poles do not accept this change in any form,” comments professor Dominika Maison. “Aggregated data from both waves show that the Act has more opponents among residents of small and largest cities.”

First and foremost, it is quite noteworthy that the change introduced impacted consumer behaviour of a very limited group of people. Before the restrictions were introduced, 85% of respondents declared they did their shopping on a Sunday, with 78% of respondents doing in spite of the current limitations of trade on Sundays. Therefore, it may be concluded that the change affected only 1 in 14 Poles. This is also due to the nature of the most common purchases made on Sunday – 78% of people declare that they shop for groceries / food, while none of the other retail categories reached the level of 50%.

The results of the research indicate that after the ban on Sunday trade was introduced, over 60% of Poles still do shopping on these days. What has changes are the places where they do their shopping – on the so-called “trade-free Sundays”, these will usually be small stores (78% of respondents) and gas stations (44% of respondents), less often confectioners and bakeries (16%) and kiosks (3%).

• The greater the restrictions, the more opponents of the ban – especially when assessing the solution planned for 2020, it can be observed that the “contra” group is much larger than the “pro” group (54% vs. 32%).
• A group of complete opponents (people who do not accept restrictions in any form) is as large as it was in the first wave of the study and amounts to 39%. More opponents of the introduced changes in Sunday trade are observed among:
  • Residents of small towns (up to 20,000 inhabitants) – it is possible that in smaller locations residents have fewer alternatives to attractions offered by large stores and shopping centres.
  • Inhabitants of big cities (over 500,000 inhabitants) – probably long distances and heavy traffic cause more difficulties in shopping during the week or on Saturdays.
  • People currently working in commerce than Poles who have never worked in this sector – it is possible that for some retail employees, these changes mean a reduction in earning opportunities.

“I think that the percentage of opponents of the trade ban will increase. Winter months are not as inviting to spend time outdoors as summer months,” sums up Cezary Kaźmierczak, president of the Union of Entrepreneurs and Employers. “We will appeal to the government to lift the ban and introduce two work-free Sundays for employees of all industries, not only trade, in the Labour Code. The current solution is discriminatory. Moreover, Polish trade is being slowly killed, as it is unable to cope with aggressive price promotions of discount stores.”

The second wave of the survey was carried out on a representative sample of Poles with a population of N: 1048 people.

 

22.01.2019 Survey by the Union of Entrepreneurs and Employers: Attitudes and opinions regarding the restrictions on Sunday trade – wave 2

 

 

Fot. PhotoMIX-Company/pixabay.com

Warsaw, 20^th December 2018

 

Energy prices threaten the competitiveness of the Polish economy – report by the Union of Entrepreneurs and Employers

 

High electricity prices constitute a threat to our economy, and to avoid high price increases in the future, Poland needs a systemic plan for an energy transformation – according to the report by the Union of Entrepreneurs and Employers published on 20^th December 2018 under the title “Energy prices threaten the competitiveness of the Polish economy”.

For several weeks now, news services have been almost dominated by reports of rising electricity prices. Public concern is perfectly understandable, because higher energy prices are a problem for both households and Polish companies in terms of their competitiveness of. At the moment, it is difficult to accurately estimate the scale of future increases, which result primarily from the increase in coal prices and CO₂ emission allowances, but without a shade of doubt, the authorities are faced with a serious strategic challenge, especially in the context of growing demand for energy.

“The problem with Polish energy has two dimensions,” claims Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers. “First of all, our energy mix is not adjusted to the global climate policy, which we cannot oppose just on ourselves, whatever it is we would like to do. The system of emissions trading is a tool for limiting the role of coal, meanwhile about 80% of electricity produced by us still comes from this raw material. Secondly, our coal-powered energy generating units are outdated, which also translates into a high emission coefficient the Polish power industry.”

Experts of the Union of Entrepreneurs and Employers emphasise that the increase in electricity prices is a direct consequence of the strong dependence of the Polish economy on electricity produced from coal whereas the EU emissions trading system decreases the profitability of this type of power plants. Pursuant to the above facts, a systemic plan for energy transformation is needed in a strategic perspective, taking into account the substitution of high-emission coal units with gas power plants, wind farms, biomass and biogas units or photovoltaics.

Therefore, in the face of rising energy prices, it is of key importance to plan a long-term transformation of the Polish energy sector from a model based almost entirely on energy coming from coal, towards a mix that takes into account to a much higher degree renewable energy sources and low-emission generation units. Meanwhile, presently, the main idea of the government to fight increasing prices is a compensation program for individual clients and entrepreneurs. As we can read in the report, there is a serious fear that its implementation will only postpone the abrupt increase in electricity prices for all recipients and constitutes “squandering” of funds that could be allocated to investments in renewable energy sources.

“The compensation system is a temporary solution, unreasonable in the long term, because without fundamental changes in the structure of the Polish power industry, price increases will take place anyway,” concludes Cezary Kaźmierczak. “Owing to that, our short-term recommendation, “for right now”, would be to cut down on the levies that condition the price of electricity, for instance, in the form of a reduction in excise tax.”

The authors of the report highlight in its summary the fact that increases in energy prices may lead to a rise in the prices of goods and services, and consequently to inflation. Therefore, an average citizen will feel the results of price increases the most, not only when footing the electricity bill, but also while shopping for groceries. Bearing in mind also the fact that electricity prices determine the operating costs of companies and are an important factor when making decisions about investing in a given country, improving the general condition of the Polish power industry is becoming one of key strategic challenges for the coming years in Poland.

 

20.12.2018 Report of the Union of Entrepreneurs and Employers: Energy prices threaten the competitiveness of the Polish economy

 

Fot. Free-Photos/pixabay.com

Warsaw, 19^th December 2018

 

Back to the Polish Social Insurance Institution

 

“A spectre is haunting Europe. A spectre of a bankrupt state-owned, pay-as-you-go pension system that has reigned for almost an entire century” is how José Piñera begins his book on social insurance.

Already a long time ago, in 2002, the Polish government admitted that de facto that there are no such things as “insurance” or “premiums” – there is tax on our remuneration. That is why they were able to introduce a work ban for pensioners: to increase the number of jobs for graduates. As I wrote back then, it’s as if PZU (the Polish national insurance provider) stated that they would only compensate the entrepreneur for destroyed property, provided that he would hire several unemployed people. However, heretics, who do not believe in the divine power of the government, stress that the amount of work on the market is not a constant. Instead of looking after a “just” division of work, the government should stop interfering with the creation of new jobs. As one could already then read in a study by the OECD Department of Economics: “introducing higher taxes on work apparently led to a reduction in both labour demand and supply, especially in the countries of Continental Europe, where the increase in taxes for social security increased average labour costs”.

If the so-called “social insurance” were real insurance, then the next governments could not have come up with the idea of unilaterally shifting the maturity date of benefits – as governments do with retirement age manipulation or changes in the algorithm based on which the benefits are calculated (what they actually do with retirement).

In March 2006, the then Prime Minister appointed me as the Chairman of the Supervisory Board of ZUS – the Polish Social Insurance Institution, and I began to raise amongst the insured awareness what their “insurance” really was. My mission ended thus quickly, after merely a dozen or so months. Now, I will continue it as a member of a representative organisation of employers: ZPP – the Union of Entrepreneurs and Employers.

It wasn’t easy, because despite being recommended, which until recently translated into an automatic entry into the body, I had to have a long conversation with the Council for companies whose shareholder is the State Treasury and state legal persons established on the basis of the Act of 16^th December 2016 on the management of state property. I reckon I did a pretty decent job, as since the Prime Minister appointed me to the Board.

Allow me to inform you first who else is a member of the Supervisory Board of the Polish Social Insurance Institution, because I dare suspect that you do not know. Currently, the Board consists of 11 people and these are:

• members appointed at the request of the minister for social security in consultation with the minister for public finances:
  • Justyna Adamczyk,
  • Marcin Zieleniecki,
• members appointed at the request of representative organisations of employers:
  • Iwona Sroka (Pracodawcy RP – Employers of Poland),
  • Grzegorz Baczewski (Konfederacja Lewiatan – Polish Confederation Lewiatan),
  • Robert Gwiazdowski (Związek Przedsiębiorców i Pracodawców – Union of Entrepreneurs and Employers),
  • Jan Klimek (Związek Rzemiosła Polskiego – Polish Handicraft Association),
  • Wojciech Nagel (Związek Pracodawców BCC – Business Centre Club),
• members appointed at the request of representative trade unions:
  • Bogdan Grzybowski (OPZZ – All-Poland Alliance of Trade Unions),
  • Bogdan Kubiak (NSZZ „Solidarność” – Independent and Self-Governing Trade Union “Solidarność”),
  • Józef Ryl (Forum Związków Zawodowych – Trade Unions Forum),
• member appointed at the request of the Polish organisation of retirees and pensioners:
  • Elżbieta Ostrowska (Polski Związek Emerytów, Rencistów i Inwalidów – Polish Association of Retirees, Pensioners and Invalids).

Marcin Zieleniecki is currently the Chairman of the Board, while Grzegorz Baczewski and Bogdan Kubiak are Vice-Chairmen.

What can the Board do? Nothing has changed since I was Chairman. This means that the Board can “talk” and as part of this talking, the Council may:

• provide its opinion on the request of the minister for social security to the Prime Minister for the appointment of the President of the Polish Social Insurance Institution (ZUS),
• periodically evaluate the work of the Management Board,
• provides its opinion on the intention of the ZUS President to appoint and dismiss the ZUS chief inspector,
• provides its opinion on the draft annual financial plan of the Social Insurance Fund and on the reports on implementation of this plan,
• provides its opinion on the project of the annual financial plan of the Demographic Reserve Fund and on the reports on implementation of this plan,
• provides opinions on the draft annual financial plan of the Bridge Pension Fund and on the reports on implementation of this plan,
• provides its opinion on rules and regulations of the competition which selects the co-financed by ZUS activities of the payers with regard to accident prevention,
• provides its opinion on the draft statute of ZUS,
• provides its opinion on draft legal acts in the field of social insurance and submits initiatives in this field addressed to the minister for social security,
• approves the ZUS annual financial plan and the reports on its implementation,
• approves the annual reports on activities of ZUS.

Of course, absolutely nothing arises from the potential “non-approval” of something by the Supervisory Board or from a “no-opinion” on a matter discussed, or even from a negative opinion.

The powers of those constituting the Board include:

• appointment and dismissal of members of the ZUS Management Board – but not independently, only at the request of the ZUS President appointed by the Prime Minister, regardless of the opinion of the Council,
• determining the remuneration for members of the ZUS Management Board, excluding the ZUS President – his remuneration is determined by the supervisory body – currently the Minister of Labour,
• adopting the regulations of operations of the ZUS Management Board.

So please do not hold any grudges against me concerning all other matters.

Aha! For performing this function – and holding this state “sinecure” – I am entitled as a member of the ZUS Supervisory Board to remuneration in the amount specified in the Prime Minister’s regulation of 28^th December 1998 on the procedure for submitting candidates for members of the Supervisory Board of the Polish Social Insurance Institution, the regulations of the Supervisory Board and the rules for remunerating its members. It amounts to 150% of the allowance specified in the regulations on allowances and other payments for business trips. I swear I’ve no idea how much that is. Probably a thousand zloty. When the money’s transferred, I will let you know the exact amount.

 

Robert Gwiazdowski

 

Fot. Petroniusz/fotopolska.eu

Warsaw, 17^th December 2018

 

Position of the Union of Entrepreneurs and Employers on the draft act on amending the act on tax on goods and services as well as the act–tax ordinance of 8^th November 2018

 

The Union of Entrepreneurs and Employers has repeatedly emphasised the need for a radical change of the VAT rate matrix. From many expert analyses, including those carried out by the Union itself, as well as from scientific research, it is clear that VAT is one of the most complicated taxes, one causing entrepreneurs the most problems. Testament to it is, among other things, the fact that the National Tax Information is most often asked about the tax on goods and services; from almost 1.5 million replies to taxpayers’ phone inquiries, over 575 thousand concerned VAT. Similarly, more than half of individual tax law interpretations issued in 2017 concerned VAT (13,800 out of over 25,000). The level of complexity of this levy is a result of numerous factors, it is impossible, however, not to notice that one of the main problems regarding VAT – especially from the point of view of entrepreneurs – is the multitude of rates and the hitherto design of its rate matrix.

The VAT rate matrix is currently based on the Polish Classification of Goods and Services (Polska Klasyfikacja Wyrobów i Usług), which in fact assigns very specific types of goods to individual rates, the goods being divided according to certain criteria that difficult to justify. Theoretically, the legislator sought to ensure that healthy, less processed food was covered by a lower tax rate than processed food. Taxation of bread is also based on a similar premise, therefore depending on its shelf-life, for example, tax on toasting bread is higher than that on sourdough bread. Unfortunately, the legislator was not consistent in his intention and, for instance, taxed mustard-based sauces higher than pure mustard. If we add to this examples quite bizarre in their nature, such as preferential taxation of waffles and wafers with a water content exceeding 10% of their mass (8% rate), unlike the other waffles and wafers (regular rate of 23%), the VAT rate system appears to us as illogical, complicated and overly fragmented.

Therefore, the actions of the draft’s authors aimed at far-reaching simplification of this tax should be evaluated as positively as possible. When the first news snippets were broadcast and published in the media concerning the intention to significantly modify the VAT matrix, it seemed that the change would not be of a revolutionary character – the Ministry of Finance simply announced the application of a different statistical classification. However, it is evident in the final draft of the act and the annexes to it that the basic objective, i.e. a radical simplification of the system, has largely been achieved. Thence, it ought to be recognised that this draft act is a step in the right direction, and it should be assessed positively.

The VAT rate matrix proposed by the draft’s authors is much simpler than the one currently in force. This is due to the fact that the individual rates cover a group of goods that is as broad as possible, without fragmenting them and assigning them to specific products, as is the case at the moment. For example, in the current legal status, the rate of 8% covers the following: chili, sweet pepper, mace, cardamom, anise, marjoram, curry, thyme, saffron – almost all are separately mentioned (!), whereas, for instance, for nutmeg, the appropriate rate is 5%. Due to the complexity of the matrix in relation to the spices themselves, in practice, doubts would arise whether individual spices should be taxed at the same rate as mixtures of spices. Spices in the current matrix were also distinguished due to the degree of being processed (for example: raw and dried). Bearing in mind that the discussed problems concern only one and quite a prosaic category of products, it is not surprising that VAT is considered to be the most complicated and problematic levy in the Polish system, and the focus here is still only on rates. In the proposed draft act, specifically the annex to the act on tax on goods and services, all the spices were assigned to the 8% tax rate. There is no doubt that both from the point of view of the practical application of tax law and common sense analysis, this solution is much better than the present state of affairs.

An analogous operation to the one mentioned above was carried out in relation to virtually all categories of goods. This way, the system was significantly simplified and in this context, the actions undertaken by the Ministry of Finance should definitely be praised and supported. The matrix is much simpler and more transparent. At the same time, the authors of the draft emphasise that the changes were not to be fiscal in nature, i.e. they were not intended to increase the budget revenues. One can believe in this statement – the grouping of goods, which until now were simply enumerated to specific rates, into broader categories, is inevitably related to lowering or increasing the tax rate for some of them. It can be argued that a radical simplification of the matrix, and such was proposed by the legislator, is impossible without certain changes in terms of the rates applicable to certain goods. Thus, it should be acknowledged that the discussion about the new matrix should be focused on systemic issues and its simplicity. It is understandable that public attention is focused primarily on the above-mentioned individual rate changes. It seems, however, that in the scale of the average consumer’s shopping basket, these changes basically offset each other, and in any case the difference between the present tax burden and the projected one is of no significance.

As part of the significant changes being introduced by the amendment of the Act, a novelty in the form of binding rate information (wiążąca informacja stawkowa – WIS) is noteworthy. According to the provisions, WIS is to be a decision issued by the director of the tax administration chamber, containing the classification of goods or services and the appropriate applicable VAT rate. WIS is to have a protective value, which means that if the goods correspond to the description contained therein, the tax authority will not be able to question the tax rate applied by the taxpayer based on it. Theoretically, therefore, WIS will be a special kind of tax interpretation, however, due to the fact that the groups of goods assigned to the rates are as wide as possible, its protective impact may be stronger than in the case of interpretations applied presently regarding rates. It is worth noting that WIS will concern not only the matter of the tax amount, but also, for example, the application of the reverse charge mechanism.

However positively do we evaluate the presented VAT matrix design, it should be noted that, in principle, the right approach would be in our opinion the adoption of a uniform tax rate. This way, all interpretative problems with regard to rates would be eliminated (which – and that is beyond any doubt – even despite the far-fetched simplicity of the proposed solution) will still exist, and the legal and tax environment for entrepreneurs would be significantly simplified. The basic argument against this solution, which is raised in the public debate, is the allegedly devastating effect of the uniform VAT rate on household budgets, especially of the least wealthy households. It seems, however, that this is a statement with no confirmation in reality.

According to the CenEA report published in 2015[1], household expenditure broken down into VAT rates corresponding to expenditure that was different for households classified as the poorest and for wealthy households. In the poorest households, the share of expenditures on goods and services exempt from VAT was lower (6% against 8.9% for the wealthiest households), as well as the share of expenses related to the VAT rate of 23% (47.8% against 58.7% of the wealthiest households). The explanation of this phenomenon is a larger share in the budget of poorer households of expenditure on basic goods, such as food, which are often subject to a VAT rate of 5%. On the other hand, wealthy households more often make use of services exempt from VAT, such as medical or educational services.

     

Another structure of VAT taxation of the so-called “basket” of goods purchased by poor and affluent households requires an answer to the question of what is the “average” VAT rate paid by households. On the basis of the data already quoted, the “average” VAT rate for the poorest households can be set at 14.7%, and for the most affluent at the level of 15.7%. The results confirm, therefore, that the current system of VAT rates means that the expenses of the poorest households are on average less subject to VAT, but this difference is not significant. This weakens the argument that reduced VAT rates are an important support factor for poor households.

In addition to the analysis of the average VAT rate, it should also be examined how much of a burden this tax is for the household budget. To this end, households were divided in terms of affluence into 10 groups, creating a decile distribution. According to the available data[2], VAT expenditure amounts to just over 16% of the income of the poorest households (first decile), then this value for 8 consecutive deciles is in the range of 9-10.5%, whereas for the last decile (the most affluent households) it comes down to approximately 7%.

Taking into consideration the presented distribution and earlier analyses concerning the average VAT paid, it can be assumed that just about 10% of all households would be affected by the introduction of a uniform VAT rate most severely.

In the discussion on the possible introduction of a uniform VAT rate, it can be noted that the proposed levels of the single rate are quite convergent and most often in the range of 15.5-17%. For example, in January 2015, the chief economist of the Ministry of Finance, Ludwik Kotecki, stated that a uniform VAT rate could theoretically be considered at the level of 16-17%[3]. At the same time, Sławomir Horbaczewski said that a rate within the limits of 15,5-16%[4] would be neutral from the point of view of budget revenues. One can also think of a number of journalistic and political statements, which also suggest varying VAT rates from the indicated range. Taking into account the previously presented data and the fact that the EU requires a rate of at least 15%, such an amount should be accepted as an alternative to the current system.

The introduction of a uniform VAT rate at the contractual level of 15-16% would therefore have, cæteris paribus, a slight impact on household budgets.

To sum up, the presented draft act should be assessed positively as one that is significantly simplifying the system, while recommending the adoption of a uniform VAT rate as the optimal solution.

 

Union of Entrepreneurs and Employers

 

[1] http://www.cenea.org.pl/images/stories/pdf/commentaries/raport1_vat_2.pdf

[2] http://www.cenea.org.pl/images/stories/pdf/commentaries/raport1_vat_2.pdf

[3] https://finanse.wp.pl/vat-16-proc-jednolita-stawka-najlepsza-6114855497205889a

[4] https://www.rp.pl/Opinie/303069902-Jednolita-stawka-pomoze-uzdrowic-VAT.html

 

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”

 

 

Fot. Mizianitka/pixabay.com