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Polish economy at a standstill: The government does not take action on VAT

There is little time left until the end of the year, and the Polish government is still dormant on the issue of sorting out VAT rates on products and services. This decision, although it may seem like a technical detail, has the potential to affect the pockets of millions of Poles.


Mlekovita Group factory (photo: Chancellery of the Prime Minister / Flickr)


The upcoming new EU directive calls into question how the government will respond to changes in taxes.


An EU directive is approaching


A new EU directive on VAT rates on goods and services is to enter into force from January 2025. Member States will be able to apply a reduced tax rate of at least 5%. up to 24 different product groups. However, only seven product groups will be able to benefit from the zero VAT rate.


It is the government that will decide which groups will be subject to the zero VAT rate. Despite previous promises about the "largest VAT reductions in history", currently there is no action in this matter. Both experts and representatives of the Ministry of Finance confirm that there is no work on the draft amendments to the VAT Act.


This means that at the moment there is no clarity as to which products will benefit from the lower VAT rate and which will be charged higher taxes. Industries such as publishing, pharmaceuticals and food may be particularly affected by this lack of decision.


Leaky VAT is becoming more and more problematic


The VAT gap, i.e. the difference between expected tax revenues and actual tax revenues, is becoming an increasing problem. Despite attempts to increase tax collection, the VAT gap is still growing, which may threaten the state budget. Moreover, the rising costs of debt servicing additionally burden the state's finances.


In this situation, the state budget may come under pressure. Experts indicate that the lack of payment from the NBP profit and the growing VAT gap may require amending the budget, which, however, the government avoids for fear of political consequences.


It is worth noting that despite the relatively low level of public debt, Poland has one of the highest debt servicing costs in the EU. A further increase in these costs may lead to the need to cut spending or increase taxes, which in turn may meet with social resistance.


The approaching end of the year is a key moment for the Polish government. Decisions regarding VAT rates and tax collection activities will have long-term consequences for the economy and the state budget. Time will tell whether the government will wake up from its political slumber and take appropriate steps or remain in limbo.


source: Money.pl


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