Polish Budget Abandons VAT Increase, Introduces Import Tax

by Tatiana Smolenska, Tax-News.com, Moscow

01 October 2001

Poland's Democratic Left Alliance, which took 41% of the vote in last Sunday's elections, is now the senior partner in a governing coalition, and after a week spent in difficult budget discussions has achieved only some of what it set out in its original draft. Finance Minister Marek Belka, who is trusted and respected by the business community, has stuck to his promise not to raise income taxes, but was forced to back off a 2% VAT increase which would have had a significant impact on the country's high budget deficit.

On Friday, Head of the Government Centre of Strategic Studies Jerzy Kropiwnicki said after a Cabinet meeting that the government had approved 2002 budget proposals, including plans to impose a temporary import tax for just one year, but had dropped plans to raise VAT from 22% to 24%.

Government spokesman Krzysztof Luft said that a budget draft should be submitted to the Sejm [lower house of parliament] by 30 September as envisioned by the Constitution.

The 2002 budget plan assumes economic growth of 2.5%, and a deficit of 40bn zlotys, 4.45% of GDP, up from 4.3% in 2001. Revenue will be 156bn zlotys and outgoings 196bn zlotys. The import tax at the rate of 5% will yield 10bn zlotys (2.4bn dollars).

Cabinet meetings had begun on Wednesday and took much longer than expected because of disagreements over the VAT increase and the sustainable level of the deficit. Deputy Prime Minister Janusz Steinhoff said after the meetings that each of the solutions discussed had its advantages and disadvantages.

Although the planned general VAT increase was abandoned, the budget introduces an 8% VAT on farming inputs, which were previously zero-rated. There will also be a fee for crossing Poland's border into the country, both for Poles and foreigners.

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