The Anatomy of VAT and Excise Tax Non-Compliance in Poland

In 2013, non-payment of VAT obligations cost the Polish budget 42 billion PLN, according to a recent study conducted by the Center for Social and Economic Research (CASE) for the European Commission.

Shadow economy, lowering the added value, bankruptcy, frauds, and legal discrepancies are the main reasons behind this situation, explained Grzegorz Poniatowski, a CASE economist, during the seminar “The Anatomy of VAT and Excise Tax Non-Compliance in Poland”. During the event, we also discussed the issue of rapid growth of the excise tax on tobacco products, which may lead to a decrease of revenues in the Polish budget.

Poniatowski presented the results of the latest CASE study about VAT gap in the EU, and revealed the methodology behind the study. In the opinion of CASE experts, there is no single solution for a VAT gap. Mechanisms that have proven to be successful in some countries, did not work in others. However, simplifying the system of assigning rates to various products and informational and educational policy seem to be steps in the right direction.

In the second part of the seminar Bartosz Radzikowski spoke about the excise tax on tobacco products. According to the CASE analysis, further increase of the burden can cause a drop in state revenues and lead to the uncontrolled growth of shadow economy. It is also possible to assume that the increase in the excise tax correlates with the occurrence of the so called Laffer curve effect in Poland.

Radzikowski also presented two different approaches to the excise tax policy - the German (fixed, gradual increases in excise taxes that caused the stabilization of the budget) and the Greek (sudden increases in excise taxes that - accordingly to the Laffer curve - caused a drop in the budget revenues).