ZPP Newsletter
Warsaw, 10th November 2020
Position of the Union of Entrepreneurs and Employers
on the announcement of the introduction of the “Legal Shield”
The Union of Entrepreneurs and Employers welcomed with great hope the announcement of launching a “legal shield” for business. In the face of the intensifying second wave of the coronavirus epidemic and the threat of lockdown, it is necessary both to provide direct financial aid to help companies maintain liquidity, and to take legislative action.
We divided these actions into three separate sections: regulations to be postponed, regulations to be improved, and regulations to be implemented. They refer both to the currently pending draft acts and to the acts already enacted, but to enter into force in the coming future. We hope that the recommendations presented below will meet the interest and favour of the Ministry of Development, Labour and Technology, which is developing the “legal shield”.
Assumptions of a general nature for our proposal:
- a moratorium of at least 12 months on any new burdens for business;
- adjusting the projects underway to the exceptionally difficult situation of Polish entrepreneurs who facing the risk of another lockdown;
- deregulation and facilitation enabling the survival of the COVID-19 crisis and the rapid post-coronavirus recovery of the economy.
REGULATIONS AND PROPOSALS TO BE POSTPONED
- Sugar tax
The Union of Entrepreneurs and Employers has repeatedly expressed its views on the sugar tax. We raised a number of arguments against this public levy, quoting, among other things, the lack of research proving its effectiveness in the fight against obesity and being overweight. We still believe that the only result of introducing the tax will be an additional burden on household budgets and an increase in the popularity of cheaper, lower-quality products.
Therefore, we assess the sugar tax as a fundamentally negative concept. We also oppose the legislative process under which the sugar tax was adopted. Practices such as the amendment of a law that is not yet enforced (and this was the case with the sugar tax) raise our objections, especially when they refer to legal acts that are so important for business entities.
Regardless of the above reservations, as part of the postulates to the “legal shield”, we call for – in accordance with our demand for a moratorium of at least 12 months on new regulations detrimental to businesses – to postpone the date of its entry into force by a minimum of one year, i.e. to 1st January 2022. Introducing additional burdens at the time of the deepest economic crisis in several decades is unacceptable and – in the case of the sugar tax – may result in the loss of tens of thousands of jobs in the entire beverage production chain.
- Corporate income tax on limited partnerships
We consider it unreasonable to cover limited partnerships with CIT. The sole effect of this move will be a significant increase in the tax burden on Polish entrepreneurs from the SME sector operating in this legal form. Contrary to the claims of the Ministry of Finance, limited partnerships are not used for the purposes of tax optimisation. As many as 99% of these companies have Polish partners, and only in six cases the general clause against circumvention of tax law was applied to tax schemes using limited partnerships.
Generally speaking, we recognise that the explanatory memorandum presented along with the draft act on CIT on limited partnerships is based on incorrect premises and therefore erroneous. Covering these companies with CIT will not contribute to the tightening of the tax system, it will only reduce the competitiveness of Polish companies.
Bearing the above arguments in mind, we believe that the proposal to tax limited partnerships with CIT should be abandoned. Presently, it is of highest importance that businesses do not have to face new burdens in the conditions of a crisis or during an economic recovery when the epidemic is brought under control. For these reasons, we consider it insufficient to extend the vacatio legis of the regulation reviewed by four months – CIT on limited partnerships ought to be abandoned.
- Retail sales tax
Due to the restrictions introduced, one of the sectors directly affected by the epidemic is of course retail. It should be stressed that these additional restrictions apply to the industry for the second time this year. Furthermore, this time they happened in November, a month which is particularly important to the whole sector due to the high seasonal turnover (upcoming Christmas, All Saints Day, Independence Day and the resulting long weekend).
Meanwhile, collection of the retail sales tax, which is an additional burden for the industry, is only suspended until 31st December 2020. This means that the new levy will apply from the beginning of next year, i.e. in the period in which – according to optimistic forecasts – we can only expect the beginning of a slow return to the “normal” situation in retail trade.
In consequence, we believe that it would be reasonable to extend the suspension of this tax by an additional year, so that it would actually come into force on 1st January 2022.
- Taxation of all civil law contracts
Despite the lack of regulations in this respect, the subject of covering all civil law contracts with social insurance premiums is being raised increasingly frequently in the public debate.
It must be emphasised that the labour market has been responding exceptionally well to the crisis related to the coronavirus epidemic so far. We can boast of one of the lowest unemployment rates in Europe. During the first wave of the epidemic, entrepreneurs avoided layoffs – the quick liquidity assistance, especially in the scope of the financial shield coordinated by the Polish Development Fund (PFR) certainly helped in this case.
However, there are numerous indications that the fall-winter wave of the coronavirus may turn out to be less kind to the Polish labour market. Many entities will not be able to survive the re-closure of the economy. Layoffs may turn out to be inevitable, and state aid programmes are unlikely to be as generous as a few months earlier.
The increase in non-wage labour costs is the last thing the Polish economy will need in the nearest future. Therefore, we call for no legislative initiative in the field of premiums for all civil law contracts.
- Other regulations imposed on entrepreneurs, including industrial entities
In addition to specific initiatives relating to increasing the public-law burdens on companies, an important factor adversely affecting the condition of entrepreneurs – especially in times of crisis – are other types of regulations scattered among many legal acts being proceeded, often striking at minuscule details within specific sectors of the economy. Therefore, a supplementary comprehensive review of the legal acts being processed should be undertaken in terms of their impact on entrepreneurs. For example, there might be various amendments resulting in an increase in burdens for energy-intensive enterprises, or an increase in the burdens related to waste management, also within the companies producing waste. Accordingly, a broad review of the legal acts being processed should be carried out in terms of their impact on the enterprise sector and amendments aimed at minimising their adverse effects on companies should be introduced.
REGULATIONS TO BE IMPROVED
- Act on the profession of pharmacist
The Union of Entrepreneurs and Employers participated in every stage of the legislative process of the act on the profession of pharmacist. We believe that, in principle, this is a necessary act, and the Council of Ministers adopted it in a compromise wording that reconciles various interests.
Unfortunately, at the stage of the parliamentary subcommittee, the draft was supplemented with two amendments eliminating in practice the sense of legal security of pharmacy owners. They essentially make it possible to close any facility based on denunciation and the broadened interpretation of unclear premises. This is paramount especially in times of epidemics, when pharmacies are often the most easily accessible point in the healthcare system for patients.
The draft act on the profession of pharmacist, adopted by the Council of Ministers, provided that the pharmaceutical inspection could revoke the licence to operate a pharmacy in the event of persistent violation of the pharmacist’s independence. The amendment introduced by the subcommittee removed the premise of “persistence” from the provision. As a result, it becomes possible to classify e.g. a dispute between a pharmacy owner and a pharmacist, or any other unclear circumstance, as a breach of the pharmacist’s independence. The consequence may be the revocation of the licence to operate the facility on this basis. It should be emphasised that under the regime of “pharmacies for pharmacists” this is an extremely severe sanction, because in many cases it may not be possible to obtain a licence again.
The other of the amendments we have questioned introduces new premises to the act, allowing for a shutdown of any pharmacy, pharmaceutical outlet or pharmaceutical wholesaler, making it effective immediately by law. The basis for immediate shutdown of a pharmacy (for a period of up to 3 months) is to prevent the manager of the pharmacy or the person responsible in the warehouse from performing tasks. The provision again contains a premise which is excessively arbitrary, undefined, and prone to broadening, the implementation of which allows for the application of an exceptionally severe sanction.
The combination of the two above-mentioned amendments eliminates the sense of legal security of pharmacy owners and threatens to reduce the availability of medicine to patients by closing more entities operating on the market. Therefore, we call for an amendment of the act so that it corresponds to the wording adopted by the Council of Ministers.
- Extension of the lump sum on registered income
Extending the lump sum on registered income so that it is a form of income tax settlement for the widest possible group of entrepreneurs has been one of the basic postulates of the Union of Entrepreneurs and Employers for years. For this very reason, we are very pleased that this proposal was reflected in a relevant draft act (by the way – the same one which provides for CIT on limited partnerships). We believe that the lump sum, due to its simplicity, should be a kind of “default” form of taxation for the SME sector.
Unfortunately, the rate matrix proposed in the act means that in practice it will be a taxation model favourable to a very narrow group of companies. From the point of view of the vast majority, a flat tax will still be a more attractive form, enabling the settlement of tax-deductible costs.
Bearing that in mind, we believe that the proposed new matrix of the lump sum on registered income should be modified and some of the rates included therein should be reduced. The problem concerns in particular the service sector; hence the key seems to be to lower the rates for liberal professions and artistic activity, and for a significant part of service activities (we propose reductions from 17% to approx. 10%).
- Economic restrictions related to counteracting COVID-19
As part of subsequent regulations of the Council of Ministers, additional restrictions on conducting business activity in Poland have been introduced over the last several weeks. We believe that the model of their implementation should be slightly amended. The main course of action should be to develop, together with industries, new restrictions of a strictly sanitary character related to compliance with the DDM standard (disinfection-distance-masks) and at the same time enabling them to continue their business. Restrictions of any kind should be introduced in advance and based on measurable, objective data (e.g. on the number of infections recorded in economic entities of a given type). The legislator should ensure the highest possible predictability of new regulations in these difficult conditions.
One should also reconsider the catalogue of the currently applicable restrictions and, if necessary, rectify them in line with the above-mentioned angle. We know about the ongoing talks regarding furniture stores; therefore, we would like to emphasise the need to enable businesses to operate, among others, shops with electronics, household appliances and computer products (justified due to the increasing share of employees working remotely, as well as students participating in remote education), or “commercial islands” (their location in open spaces, as well as the characteristics of these points of sales are not without significance in terms of the epidemic risk).
REGULATIONS TO BE IMPLEMENTED
- Reimbursement development mode
The pandemic has doubtlessly shown us in practice the importance of drug sovereignty – the dependence of the system on the supply of medicinal and medical products from third countries generates a number of risks, including the possibility of breaking global supply chains in crisis conditions or increased global demand for certain products.
Moreover, the innovative pharmaceutical industry can effectively act as a driving force for economic development – this fact has been noticed and taken into account, among others, in the content of the Strategy for Responsible Development.
The Strategy for Responsible Development also describes the need to support domestic drug production. In light of the above-mentioned diagnoses, this goal should be considered absolutely justifiable. Unfortunately, despite numerous declarations and developed concepts, the model of supporting drug production in Poland has still not been implemented. In practice, the share of the domestic pharmaceutical industry in GDP is decreasing. This means that the level of dependence on external pharmaceutical markets, contrary to the target set out in the SRD, is increasing.
We believe that the “legal shield” is an appropriate place to stop the discussion on the need to implement solutions supporting domestic drug production (described collectively as “reimbursement development mode”) – RDM ought to be its integral element.
- Sunday trade ban to be lifted
The experiences of the spring wave have taught us that the epidemic crisis also has a critical impact on trade. It is affected not only directly by legal provisions, but also by the mood of consumers or their concerns about, for example, a physical visit to a point of sale. We call for the ban on Sunday trade to be lifted. The coronavirus outbreak has triggered a deep crisis in the trade sector and other areas of the economy. After the spring lockdown, many stores did not return to their previous sales volumes.
The slower trade dynamics will translate into a decline in production in all sectors, which in turn will translate into a decline in the purchasing power of citizens and, consequently, a reduction in consumption. All possible measures must be taken today to stimulate production and trade, maintain jobs and demand.
Enabling trade on an additional and – for many industries – key day of the week is and will undoubtedly be a contributing factor. It may also contribute to reducing the risk of spreading COVID-19. Spreading the traffic over more days will reduce the number of customers visiting store simultaneously and reduce the risk of disease for store employees.
- Expansion of online sales
The dynamic development of online sales channels was a fact already before the pandemic, but at the moment it seems that an even greater part of consumer traffic can take place completely online. It is possible especially in the context of restrictions on the operation of commercial establishments introduced by successive regulations.
In view of the above, we consider it reasonable to extend the catalogue of products that may be sold over the Internet. It would also be a beneficial move from the point of view of implementing the principles of social distancing and limiting outdoors activity. We believe that it should be possible to sell legally available stimulants online, as well as prescription medicine, so that one no longer has to go to a physical retail outlet or pharmacy to buy them.
- Reduction of the VAT rate for food catering services
A flagship postulate of the Union of Entrepreneurs and Employers has recently been the proposal to reduce and harmonise the VAT rate for all food catering services to the level of 8%. Unfortunately, our demand was not executed, and in the face of the actual shutdown of the whole sector, restaurants were faced with the spectre of mass bankruptcies.
In the conditions of the ongoing crisis, harmonising the VAT rate at the level of 8% may not be enough. In order to enable catering establishments to be more profitable and, consequently, to survive in extremely limited operational conditions, the VAT rate should be harmonised to all catering services (including drinks) to 5%. From the budgetary point of view, this will be a relatively small loss (the closure of restaurants results in a turnover throughout the industry that is currently extremely low), but in the long run it will allow for securing the tax base, which should be one of the priorities of the policy pursued in the conditions of crisis.
Taking this into account, we believe that one of the elements of the “legal shield” should also be the harmonisation of VAT rates for food catering services, and perhaps also a revision of the rates of this tax for other services, the provision of which has been limited under the restrictions introduced in order to fight the virus.
- No excise tax increases; amendments to Excise duty act and Tax Ordinance
Industries manufacturing products subject to excise tax and related industries (such as food services, the hospitality industry, and event industries) have been severely hit by the epidemic crisis. The Union of Entrepreneurs and Employers calls for no measures to be taken to further increase the prices of excised products on which the operation of the experienced industries is largely based.
This appeal is all the stronger, because recently we have had to deal with a twice as severe excise tax increase – high, and what is worse, much greater than previously announced. Therefore, we believe that in order to provide basic legal certainty for entrepreneurs operating in excise industries (and also for representatives of related sectors), excise duty increases should be refrained from in the near future.
At the same time, it would be reasonable to introduce amendments to both the Excise duty act and the Tax Ordinance, regarding excise entities and covering, inter alia:
- clarification that excise permits are not revoked in the event that the taxpayer submits a collateral for the implementation of decisions resulting in tax arrears,
- clarification of the rules for submitting collateral for the enforcement of tax decisions at the taxpayer’s request also before issuing such decisions and withholding secured decisions,
- allowing the possibility of issuing certificates of no arrears in taxes in the event that the taxpayer submits a collateral for the implementation of tax decisions,
- admitting the possibility of suspension of a proceeding by the authorities if the resolution of the case may be affected by another proceeding in progress.
- Repeal of provisions lowering the maximum non-interest costs of consumer credit
We call for a withdrawal from the harmful reduction of non-interest costs of consumer credit. As part of one of the special COVID-19 acts, regulations were introduced limiting non-interest costs of consumer credit to an unprecedentedly low level. In the course of legislative work, we drew attention to the fact that by hitting legally functioning companies, this solution would result in the development of the shadow economy, and in extreme cases also of criminal groups.
Shortly after the regulations came into force, advertisements of “private loans” – granted, of course, on terms unequivocally pointing to usury – started to circulate on the Internet, just as we had predicted.
The COVID-19 crisis will certainly worsen the financial situation of many Poles. We believe that a rational legislator should not limit them the availability of legally functioning sources of external financing. Therefore, we support the repeal of the provisions under review as part of the proposed “legal shield”.
- Exceptional solutions ensuring the continuity of operations of strategic sectors
Certain sectors of the economy cannot under any circumstances be closed, regardless of the epidemic situation, due to the fundamental needs of the population – for example, the pharmaceutical sector or the production of essentials must function continuously. On these grounds, it is crucial to secure supply chains for these sectors, as well as ensure the availability of personal protective equipment and COVID-19 tests, so as to minimise the negative impact of the epidemic on the continuity of production plants. From this point of view, it is also imperative to maintain the efficiency of international transport corridors.
- Heightened flexibility of labour law provisions
The coronavirus epidemic causes significant difficulties in managing working time in companies. An increasing number of infections, quarantines, as well as the transition of a significant part of students to remote learning, together all cause numerous absences and problems with scheduling.
Considering the above, efforts should be continued in the field of – even temporary – increased flexibility of labour law provisions, so that it would be possible to secure the continuity of the operation of workplaces. Among the possible changes worth considering, one could highlight the extension of the catalogue of sectors of the economy covered by more flexible solutions in the field of recommending overtime work, as well as a significant increase (or suspension for the duration of the pandemic) of the annual overtime limit (a key change primarily from the point of view of production plants, in which some of the crew were sent to quarantine).
Fot. successphoto / Adobe Stock
