Higher rates of tax on goods and services – a basic 23 percent. and a reduction of 8 percent. – Introduced the government of PO-PSL for the first time in 2011. Other cabins have extended the requirement for a temporary increase every two years. Now the Ministry of Finance wants to make a provisional one. Instead, it proposes a rigid, statutory registration of conditions after which the VAT rate will automatically return to the basic values - 22 and 7 percent. (Formally, it is how much it will still be). There is, however, no reason to expect the reduction to take place swiftly.
According to the ministry, the return to lower rates will no longer depend directly on politicians' decisions, but on the level of public finance deficit and debt. Increased rates apply if two conditions are met. First: Public debt reduced by the amount of cash that the MF has in its accounts, for example from the sale of bonds, will remain above 43%. Of GDP (according to the Treasury, last year it was about 47.7% of GDP, this year reaching 45.9% of GDP).
The second condition is that the gap between the general government deficit and the target Poland is expected to exceed 6 percentage points. Of GDP. The target is a deficit of 1 percent. Of GDP, and the difference in question is the cumulative value calculated from 2015, the term 'public finance' is called a control sum. This temporary cause stems from the fact that 2015 was the first year when a rule setting the limit of public expenditure whose control sum is the only important element was in force. The criterion of a large enough checksum is also met: in 2017 it was 6.28%. Of GDP. And that's enough to maintain rates of 23 and 8 percent.
Even if returning to lower VAT is difficult, it is not impossible. If we believe in the ministerial forecast, this year the control fee will fall below 6 percentage points. Of GDP. However, the public debt will be reduced to the required level in only three years.
The discount may be in the following term
The Ministry of Finance today will publish a draft amendment to the VAT Act. It replaces the current "temporary" application of increased rates with a strictly defined mechanism. The rates will depend on the size of the debt and on the general government deficit. The ministry had to face this issue because at the end of this year, the two-year deadline for applying the increase introduced for the first time by the PO-PSL will expire in 2011. If the ministry does not accept the change, from January 1, 2019, the tax will return to the basic rates of 22 percent. base rate and 7% reduced.
The persistence of the surplus in the Treasury (after September, over PLN 3 billion over the positive value) does not alter the fact that the fall in rates would mean a significant loss in VAT revenue. This is about PLN 7 billion. This year's public finance result will be very good (according to the International Monetary Fund 0.3% of GDP). Next year it will be difficult to repeat due to the weakening of economic growth. And the decline in VAT revenues would be another blow the MF can not afford.
The center was looking for an indirect departure. Those who do not change fixed rates at fixed rates (formally, the basic rates are still 22 and 7 percent), but they will not let you return to the matter after several years. It should be a mechanism that is strictly linked to the rule that limits to public spending are set each year. By default, the ministry calculates it by spending the previous year and increasing it by the average GDP over the past six years (plus its forecast for the next two) and the inflation target of the National Bank of Poland (2.5%). If the financial deficit is too high or the debt is too high, this limit must be adjusted. The Public Finance Act clearly defines the amount of these adjustments. First, about 1.5 percent. the limit of expenditure if the public debt, less the amount of available resources available to the Treasury, exceeds 43%. Of GDP or – and this is the second assumption – the deficit is too high in relation to the target the government should focus on when preparing budgets. The goal is to keep the deficit at 1%. Of GDP. The correction is made if it is calculated from 2015 (ie from the year when the rule was applied for the first time), the cumulative difference between the actual deficit and the target control sum exceeds 6 percentage points. Of GDP.
Reducing the VAT rate should lead to a reduction in expenditure
The ministry officials suggest that the return to lower VAT rates would occur if there were no need to adjust the spending limits. This means that when debt and deficit fall to low enough levels.
– Our intention is that returning to reduced VAT rates will not bring drastic cuts in spending. The spending rule works in such a way that the extraordinary change in revenue resulting from the reduction in the VAT rate should lead to a reduction in expenditure to the same extent. Therefore, a good fiscal situation when the corrective mechanism in the spending rule that is triggered by a high deficit or debt will allow for an increase in spending by PLN 12 billion. This is the amount that could be used to finance VAT reduction – says Deputy Finance Minister Leszek Skiba.
For the time being, adjustments have to be made because the debt-reduced debt ratio in the year 2017 was 47.7%. The Ministry estimates GDP and the "control amount" at 6.28 percentage points. Of GDP.
Depending on the return on the lower tax on the deficit and debt scale, Poland will apply the increased rates for at least five years. The length of this period can be estimated based on available MF forecasts. In the justification of the next draft budget, the ministry expects that the amount of debt taken into account in the VAT assessment mechanism will remain above the required figure of 43%. Of GDP – by 2021. And just use the increased rates, although already this year the control amount will fall below 6 percentage points. Of GDP due to the record low deficit in 2018
The fact that the criteria allow the departure of 23- and 8%. VAT will be met in 2021, but this does not mean that the tax will be automatically reduced. By law, this will happen with a two-year slip due to the date of publication of the data by the central statistical office. The debt for 2021 will not be known until the end of 2022, which means that the 22% base rate is restored. and decreased by 7 percent. it could only happen in 2023.
The proposal, which was released today, does not contain another important solution that the market expects, namely the VAT matrix. This is a new classification of individual goods and services into tax rates. Today's system based on the Polish classification of goods and services used by the central statistical office raises many misunderstandings and taxpayers do not always know which rate to use. PKWiU for VAT purposes is therefore to be replaced by the classification of the CN used in international trade. The new matrix must be neutral for the budget.
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