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Targeting multinational companies while offering tax cuts to domestic firms could lead to increased uncertainty

Plans by Poland’s populist government to alter tax regulations and curb cash loans have raised eyebrows among investors.

Experts say the changes in tax policy to pay for certain pledges made in the country’s last elections could hit multinational companies hard. Major foreign companies could see greater taxes in their sales revenue as a result of the government's efforts to promote domestic business and fund social security benefits.

“The new government feeds on popular belief that multinational companies present in sectors like banking or retail trade avoid paying taxes in Poland,” says Aleksander Łaszek, an economist at the Polish Economic Society. “Thus, it is easier for the government to levy extra taxes on those sectors and simultaneously introducing minor tax cuts for smaller companies.”

He adds: “The main effect of sector-specific taxes is increased uncertainty – moving away from one general tax regime to sector-specific taxes makes tax policy more unpredictable.”

Impulsive government

Robert Gwiazdowski, a law professor and attorney, agrees. “The government’s decision on taxes will have a negative impact on investors. The company tax rate in Poland – 19% – is not very high. But what troubles investors is that taxes in Poland are unpredictable, as the current Polish government has turned out to be as impulsive if not even more so than its predecessor.”

The Polish Justice Ministry’s plans for cash loans aim to increase consumer protection by limiting the cost of cash loans. According to analysts, however, they have the potential to have a negative impact on lending, financial security and consumers in the country.

“I think there is a misunderstanding of the market situation by the ministry,” says Marcin Nowacki, vice president of the Board of the Union of Entrepreneurs and Employers (ZPP). “The original idea was to regulate and introduce the cap for loans between individuals, and I support that direction. I can’t understand why the ministry includes in the regulation the sector of loan companies that operates legally under the new regulation, which also includes cost caps and came into force in March 2016.”

There are fears that banks and other financial institutions could curb mortgage lending and that some of the proposed changes could force certain consumers to use the services of companies operating in unregulated areas.

“Most probably, some of the current payday loan providers will quit the market,” says Mr Łaszek. “Generally speaking, there will be a shortage of more risky loans for small amounts, where the costs associated with non-performing loans and the fixed costs of proceeding each loan will be much higher than the proposed ceilings.”

Mr Gwiazdowski admits that there had been problems with the high annual percentage rates (APRs) on such loans, but adds: “The new rules can, and will, drive out credit providers from Poland. Many Polish citizens need quick loans. Without legal providers of credit, we will have an increase in illegal lenders. We will see the rise of ‘black loans’.”

This article is sourced from fDi Magazine
fDi Magazine

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