Look no further than Poland for the answer to clever tax control, says economist
When it comes to successful tax collection Poland is a case in point, according to the director of the Polish Institute of Economics, Piotr Arak.
In a recent blog for the World Bank entitled ‘Tax compliance is the cornerstone of safety nets: Lessons from Poland’, the economist argues that by “increasing tax compliance and closing loopholes in the tax system, Poland has been able to increase taxes without increasing tax levels.”
He adds: “VAT represents the country’s biggest source of revenue, accounting for around 40% of the country’s budget.”
This is why the government established Krajowej Administracji Skarbowej (The National Revenue Administration) in 2017 to fight against VAT fraud. The organization brought together three divisions who had previously operated independently from each other, slowing down processes and hampering co-operation. The new unit has seen impressive results since its inception.
Another reason for increased revenues has been the implementation of Standard Audit File for Tax, known in Poland as Jednolity Plik Kontrolny (JPK). This has been phased in since 2016 but has been fully operational since July 2018.
Arak points out: “Every month, companies must send a report to the tax register via a new IT system. Furthermore, a Central Register of Invoices will be established in 2019 which will help the tax authorities collect and analyze data and then follow-up with taxpayers.”
The Central Register will allow tax inspectors to easily identify those who have misreported and follow up with them. Arak points out that: “According to estimates from the Polish Economic Institute, the shadow economy decreased from 15.7% of GDP in 2015 to 13.7% in 2018 while total tax revenues increased from 32.4% GDP in 2015 to 33.9% GDP in 2017.” This was achieved without increasing taxes.
The Polish government has announced a raft of ambitious tax cuts as well as increased spending on social activities. In April they lowered the copper tax by 15% and announced plans to scrap income tax for under 26 year olds, reduce the lower tax band from 18% to 17% and change the tax deductible costs from 2020. These cuts could cause Poland’s budget deficit, which has being falling due to sustained economic growth in recent years, to rise closer to the EU’s 3 per cent limit in 2020.
In April Finance Minister Teresa Czerwinska said: “We raised our estimate for GDP growth for 2019 from 3.8 percent to 4 percent, so we expect that this will stimulate growth.”
According to Arak, if the tax compliances continues to increase then revenues may continue to grow while taxes can be reduced. Tax enforcement can be aided by improved technology while not costing the tax payer more money.
He concludes: “Initiatives to strengthen the Tax Administration’s autonomy must be made in tandem with the development of mechanisms to control the legality of its work, in order to combat corruption. Improving taxation enforcement and collection is not easy but it is well worth it.
“In the case of Poland, the country was able to increase its revenues without passing the burden onto its citizens.
“In turn, these improvements created additional fiscal space to enhance programs aimed at improving citizens lives , creating a truly ‘win-win’ scenario that other countries might be able to learn from!”
The full report can be read here.