Take VAT! Govt. gains from VAT

Paweł Supernak

Poland’s soaring VAT receipts, fuelled by the government’s tax collection drive and fast economic growth, are probably running out of steam, said economists in analysis disputed by the finance ministry.

“There’s a boom for VAT experts,” Deputy Finance Minister Paweł Gruza said in an interview. He declined, however, to disclose the government’s own detailed analysis of the causes for rising receipts, which he had promised by the end of April, according to a Business Insider report.

Last year, Poland’s VAT receipts were a quarter or a whopping PLN 30 bln (EUR 9.984 bln) higher than in 2016, rising at a rate double the government’s target.

On Tuesday, speaking at the European Economic Congress in Katowice, Polish PM Mateusz Morawiecki thanked those who contributed to the government’s efforts aimed to plug loopholes in the VAT collection system.

At a meeting with start-up firms as part of the congress's European Start-up Days, the PM mentioned IT and tax office experts, whom he referred to as “the true creators of this success of the great VAT system tightening that happened over one year and brought PLN 30 bln (EUR 7 bln).”

Prime Minister Mateusz Morawiecki earlier had said that nearly all of the increase was explained by his government’s drive against tax avoidance but independent analysts disputed the account, pointing to legal changes, accounting changes and an expanding tax base thanks to rapid economic growth on the order of 4%.

Credit Agricole said in a report that the government’s collection drive could explain under half of the increase or between PLN 8 bln (EUR 1.862 bln) and PLN 17 bn (EUR 3.956 bln). The rest, the report said, was accounted for by rapid growth and the ministry of finance bringing some tax repayments forward from the early months of 2017 to the last quarter of 2017, thus inflating the difference in receipts between the years.

Pointing to cyclical factors behind the rise in VAT receipts, namely to high growth driven by consumption, chief economist at PKO BP, Piotr Bujak sees a slowdown down the road. With consumption slowing down and rates of non-payment nearing their natural limit, there remains limited scope for further improvement, he said.

“Eliminating loopholes has brought [an increase of] PLN 15 bln [EUR 3.490 bln], that is 0.8% of GDP in a single year,” he said. “That really is a big change and a massive success [for the government].”

There is a limited scope for further gains, he said, since rates of non-payment can only decline to zero and no lower.

The government remains, however, committed to ensuring higher VAT receipts with the finance ministry forecasting an increase to PLN 200 bln (EUR 46.583 bln) in 2020.

The value added tax or VAT, a sales tax on goods and services, is now Poland’s second-largest source of government revenue after the personal income tax (PIT), having overtaken transfers from the European Union in 2017.