Conditions for conducting business activity in Poland.
Necessary improvement of legal and institutional business environment
and diametric change of the tax system
In Poland, in terms of the legal and institutional business environment, there is still much room for improvement. These are the conclusions from the analysis of international economic rankings, where in three out of four summaries, Poland achieved a worse result than the year before. To change this, the Polish tax system should be amended, made easier, more logical, and better understandable. It is necessary to rewrite numerous tax bills and reduce non-wage labour costs. These are the recommendations of the Union of Entrepreneurs and Employers, which were discussed as part of this year’s presentation of the report “Conditions for conducting business activity in Poland 2018”.
“After Constitution for Business, it time for the tax system and “state within the state”, acting as if next to it and apart from it, independent giants such as SANEPID, construction inspectorate and more than 40 other institutions alienated from economic policy and institutions acting without any supervision, being an entrepreneur’s nightmare,” said Cezary Kaźmierczak, President of the Union.
In 2017, Poland was one of the fastest-growing economies of the European Union, next to Ireland (7.8%), Romania (7%), Malta (6.6%) and Estonia (4.9%). One may conclude the increase in Polish GDP is at least to a certain extent the effect of the favourable situation in Europe. On the other hand, the worse results in this year’s rankings are, according to the Union’s experts, a disturbing symptom, demonstrating an insufficient pace of implementation of regulatory, pro-business changes.
Among the key determinants of running a business is the tax system, which is assessed in Poland as bad (2.2 on a five-point scale). The Online Legal Acts System indicates that in 2017 basic tax laws changed 36 times. Another problem is the level of complexity of Polish tax law. According to the Global Competitiveness Report 2017-2018, prepared by the World Economic Forum, it is the most problematic factor for running a business in Poland.
“In order to realise the complexity of our tax system, we need to quote a few numbers. Five laws, crucial for the Polish tax system, cover over 1,200 pages of text. With the optimistic assumption that the average reading rate is 200 words per minute, and 250 words fit on the page, reading these rules would take over 26 hours of uninterrupted reading. And one had better remember this is only a fraction of the tax law, as one should also consider the judicial decisions and interpretations issued by tax authorities,” comments Katarzyna Niemyjska, the Union’s Department of Law and Legislation director.
The level of complexity of the Polish tax system is reflected in the annual report of Paying Taxes, prepared by PwC and the World Bank. The Polish tax system was evaluated in 2018 as being 51st in the world, ranked lower than the tax regulations of Botswana, Azerbaijan and Rwanda.
Another important barrier to running a business in Poland is the high share of compulsory social security contributions in general labour costs – it amounts to 29.7% and is the 12th highest among OECD countries. As a result of high non-wage labour costs in Poland, with a gross salary of PLN 4,000, the employee earns little more than PLN 2,850 net, while his full-time job costs the employer over PLN 4,800. This means that roughly 50% of the gross salary goes in one form or another to the state and not directly to the employee.
“The basic demands of the Union of Entrepreneurs and Employers regarding the repair of the Polish tax system remain the same as last year. Above all, one should focus on a comprehensive change – in essence, rewriting the majority of tax acts from scratch – legal acts in the current wording become less and less understandable, and subsequent amendments only complicate them even more. As we speak, there are definitely too many of them. One cannot demand from the Polish people, including entrepreneurs, that they will act one hundred percent in accordance with the provisions of the tax law if key laws are changed as often as in Poland,” claims Cezary Kaźmierczak, President of the Union.
“A well-functioning judiciary is one of the main factors affecting the conditions of running a business in a given country. According to the latest edition of the prestigious Doing Business report, presented annually by the World Bank, the court enforcement of a contract takes in Poland 685 days and costs 19.4% of the value of the subject of the dispute. Thus, in this category, Poland is ranked on the 55th place out of 189 countries considered. It is the exact same result achieved both in last year’s ranking and in 2016. This means that in the light of the analysis carried out by experts of the World Bank, the Polish economic judiciary de facto ‘stands still’ at least for the third year in a row,” says Jakub Bińkowski, Union expert.
In the Global Competitiveness Report, in terms of independence of courts, Poland was rated as 99th out of 137 countries analysed. This means a decline compared to 2016, when we were 81st out of 140 countries.
In a different ranking – Doing Business 2018, Poland was place 120th out of 190 countries in the category of starting a business (this indicator refers to the establishment of a limited liability company). It is a fall from the 107th place achieved in the analysis for 2017 (and an even bigger one compared to 2016, when Poland was 85th).
“A country such as Poland should be its region’s economic leader and ought to set standards rather than try to adjust to them. These reservations aside, one must at the same time appreciate the initiative of the legislator, who in the analysed period managed to implement a number of significant and beneficial changes for entrepreneurs. In 2017, the law introducing the legal certainty clause entered into force. We also positively evaluate the signing of the Constitution for Business. The new law introduces solutions for entrepreneurs better than those hitherto in force,” said the Union’s President Cezary Kaźmierczak. “However, the amendment to the Pharmaceutical Law we consider to be undoubtedly harmful, under which the principle of the so-called ‘Pharmacy for a pharmacist’ rule was implemented.” he added.
The Union of Entrepreneurs and Employers postulates conducting pro-freedom policy, reducing a significant part of unnecessary regulations, and a strong liberalisation of the economy, combined with prudent tax legislation, based on much higher legislative standards. These recommendations are therefore the same as they were last year.