Polish Sejm Overturns President's VAT Veto

by Ulrika Lomas, Tax-News.com, Brussels

13 September 2005

The Polish Sejm (parliament) has rejected the President’s veto of a bill re-introducing VAT rebates on construction materials. As a result, the rebate measure will come into effect on 1st January 2006, with 15% rebates back-dated to 1st May 2004.

There are elections later this month, and it is widely supposed that the near-unanimous vote is simply a populist gesture without economic logic. There will certainly be knock-on effects in terms of higher taxation elsewhere, or a higher budget deficit.

The rebate statute reverses the increase in VAT on construction materials from 7% to 22% that came into force when Poland joined the EU on 1st May 2004. Under the statute, private individuals who have built or renovated their own flats will be entitled to compensation for the additional tax paid since 2004.

Prime minister, Marek Belka, asked the president, Aleksander Kwasniewski, to veto the VAT refund. The VAT refund will cost the Polish treasury an estimated Zl1.6 billion ($507 million) each year. The Polish finance minister, Miroslaw Gronicki, expects the implementation of the proposed legislation to cost Zl3 billion ($957 million) in lost revenue, and is talking about an increase in the fuel excise tax from 30% to 40%.

The game is not over yet, however if the present government is replaced by a coalition of the Civic Platform and the Law and Justice partie. Civic Platform leader, Jan Rotika, wants to introduce a 15% flat tax for corporate and personal income tax as well as VAT.

One good effect of the VAT refund on building materials may be to bring some of the enormous grey construction market out of the shadows, since refunds and the low VAT rate will only be on offer to those who have supplier invoices.

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