Higher rates of tax on goods and services – the basic 23 percent. and decreased by 8%. – for the first time introduced the PO-PSL government in 2011. The following cabinets expanded the assumption of a temporary increase every two years. Now the Finance Ministry wants to break away with a provisional one. Instead, it proposes a rigid and statutory registration of the conditions, after which the VAT rate will automatically return to the core values - 22 and 7 percent. (Formally, that's how much they will be). However, there is no reason to expect the reduction to take place quickly.
According to the ministerial project, returning to smaller quotas will no longer depend directly on politicians' decision, but on the level of public deficits and debt. Enhanced courses will apply as long as two conditions are met. First: the reduced public debt with the amount of cash that MF has in its accounts, for example, from the sale of bonds, will remain above 43%. GDP (according to the Ministry of Finance last year was about 47.7% of GDP, this year will reach 45.9% of GDP).
The second condition: the gap between the public finance sector deficit and the target that Poland assumed will be more than 6 percentage points. GDP. The goal is a 1% deficit. GDP, and the difference in question is the cumulative value calculated since 2015, in public finance terminology it is called a control amount. This provisional collapse stemmed from the fact that 2015 was the first year in which the rule setting the public spending limit was in force, the amount of control of which is the only important element. The criterion of a sufficient amount of control is also met: in 2017 it was 6.28%. GDP. And that's enough to maintain rates of 23 and 8 percent.
Although the return to lower VAT will be difficult, it is not impossible. If we believe the ministerial forecasts, already this year the amount of verification will fall below 6 percentage points. GDP. However, public debt will be reduced to the required level in just three years.
The reduction may be in the next term
The Ministry of Finance will publish today a draft amendment to the VAT Law. It will replace the current "temporality" of increased rates with a strictly defined mechanism. The amount of the rates will depend on the size of the debt and the deficit of the public finance sector. The ministry had to deal with this issue because at the end of this year, the two-year deadline for the first-time increase introduced by the government's PO-PSL will expire in 2011. If the ministry did not prepare the amendment, starting January 1, 2019, would return to base rates, which is 22%. base rate and 7% reduced.
The persistence of the surplus in the cash register (after September exceeded PLN 3 billion in positive) does not change the fact that a fall in rates would mean a considerable loss of VAT revenue. It is about PLN 7 billion. The result of this year's public finances will be very good (0.3 percent of GDP deficit under the International Monetary Fund). Next year, due to the decline in economic growth, it will be difficult to repeat itself. And a fall in VAT revenue would be a further blow that the MF can not afford.
The resort sought an indirect exit. One that will not change fixed rates in fixed rates (official base rates are still 22 and 7%), but it also will not allow you to get back to the matter in a few years. It should be a mechanism strictly linked to the rule, which establishes a limit on public spending each year. By default, the ministry calculates it by taking the previous year's expenditure and increasing it with average GDP over the past six years (plus two forecasts) and the National Bank of Poland's inflation target (by 2.5%). . If the financial deficit is too high or the debt is too high, the limit needs to be adjusted. The Law on Public Finance clearly defines the value of these adjustments. First, 1.5%. the expenditure limit is made when the public debt reduced by the amount of available resources available to the Ministry of Finance exceeds 43%. GDP, or – and this is the second premise – the deficit is too high in relation to the objective the government should take into account when preparing budgets. The goal is to keep the deficit at 1%. GDP. The correction is made, if 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 amount exceeds 6 percentage points. GDP.
Reducing the VAT rate should lead to spending cuts
Ministry officials suggest that returning to reduced VAT rates should take place when spending limits need not be adjusted. That is, when debt and deficit fall to quite low levels.
– Our intention is that the return to low VAT rates will not lead to 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 tax situation, when the correction mechanism in the spending rule ceases to operate due to a large deficit or debt, will allow for an increase in expenditure of PLN 12 billion. This is the amount that could be used to fund the VAT reduction – says Deputy Finance Minister Leszek Skiba.
For the time being, adjustments have to be made, because the reduced debt with free funds in 2017 was 47.7%. The ministry estimates GDP and the "control amount" at 6.28 percentage points. GDP.
The dependence of a return to a lower VAT on the size of the deficit and debt means that Poland will apply increased rates over a period of at least five years. The duration of this period can be estimated on the basis of available MF forecasts. In justifying the draft budget for next year, the ministry predicts that the amount of debt taken into account in the VAT setting mechanism will remain above the required figure of 43%. GDP – by 2021. And it is enough to use increased rates, although already this year the amount of verification will fall below 6 percentage points. GDP due to the record high deficit in 2018
The fact that the criteria allow the departure from 23- and 8%. VAT will be reached in 2021, but it does not mean that the tax will be automatically reduced. According to the draft law, this will happen with a two-year allocation due to the publication of data by the Central Statistics Office. The current debt for 2021 will not be known until the end of 2022, which means that the base rate of 22% is restored. and reduced to 7%. this could only take place in 2023.
The project published today does not include another important solution awaiting the market – the VAT matrix. This is a new allocation of individual products and services to tax rates. The current system, based on the Polish Classification of Goods and Services, used by the Central Statistics Office, raises many misunderstandings and taxpayers do not always know what rate they are applying. As a consequence, PKWiU for VAT purposes should be replaced by the CN classification used in international trade. The new array must be neutral for the budget.
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