Is the Tax Policy of Poland an Example for Countries eyeing the EU?

by Antonio W. Romero

Accepting new members to the European Union cannot work based on political or geopolitical considerations or at the behest of emotions and feelings. A country planning to become part of the EU someday has to have an economy that resembles what is happening in most European Union countries that joined after 2004. One of the principal determinants distinguishing EU countries from other countries is the tax system, methods of paying taxes, transparency of income and state control over what is happening in entrepreneurship and business. At the same time, the countries that joined the EU in 2004, including Poland, forge ahead, gaining traction during the end of the coronavirus pandemic.

One of the significant developments in reforming tax systems in Eastern Europe is the current Polish tax reform that started in the spring of 2021. However, to carry out tax reform and change the ratio of tax revenues to GDP for the better, it is necessary to have a solid base in well-working and stable sales of industrial enterprises. Poland has it.

Thus, according to the PAP news agency, industrial production in Poland in April 2021 increased by 44,5% compared to the same month a year earlier. It gives hope for a quick recovery from the coronavirus pandemic. At the same time, according to the Central Statistical Office of Poland, industrial production in Poland in April was 9,2% lower than in March m/m. At the same time, according to the statistical agency Eurostat, which uses a different methodology, industrial production grew by 16,3% in March (one of the highest growth rates in the European Union, consisting of 27 countries).

In this regard, the tax reform initiated by Prime Minister Mateusz Morawiecki is of interest from the point of view of other European countries and countries that will apply for EU membership in the future. Mr Morawiecki plans to raise more taxes by increasing taxes for farmers and freelancers and is also creating a unique digital tax system.

At the same time, several of Poland’s neighbours, including Ukraine, are trying to copy this experience, albeit unsuccessfully. Some of the obstacles to a successful ‘copy-paste’ strategy may include failures that Ukraine had in the past, such as constant turnover of prime ministers and the massive departure of the able-bodied population abroad due to the system of extortions from law enforcement agencies and the pressure on large, medium, and small businesses.

This pressure acquired a systemic and comprehensive character. Unfortunately, it did not subside after the getaway of President Yanukovych, who encouraged the pressure, and the coming to power of Presidents Poroshenko and Zelenskyy.

In this situation, the new tax reform, which the government of Ukraine is considering to implement, looks unbalanced and can lead to severe problems in the various regions of Ukraine. Last week, a member of the European Parliament, full member of the Committee on Economic and Monetary Affairs (ECON) and the Subcommittee on Tax Matters Fulvio Martusciello addressed the President of Ukraine, the Head of the Verkhovna Rada and the Prime Minister of Ukraine with a letter where he pointed out the harmfulness of some of the changes that are part of the new tax initiative.

According to sources in the European Parliament, he appeared to stress: “Over the course of several years, Ukraine has been showing its interest in future integration into the European Union and NATO, somehow trying to reform the foundations of its economy by shifting away from a planned one.

“It is alarming that the new authorities of Ukraine — having declared themselves as reformers — initiated the redistribution of business in favour of certain individuals rather than the development of democratic institutions. The tax reform, which takes place under the guise of fighting against corruption and promoting deoligarchisation, may result in another redistribution of the market”, added MEP.