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Fiscal Implications and Distributional Impacts of Tax Expenditures conference

November 30, 2010

On November 29, 2010  the Ministry of Finance in partnership with with the World Bank organized an international conference on Fiscal Implications and Distributional Impacts of Tax Expenditures. The main goal of the conference  was to present the Tax Expenditures Review, which is the first comprehensive report of this kind for Poland.

Estimates included therein show, that the cost of tax expenditures is close to 4,9 percent GDP, and in 2009, revenues of state budget and budgets of local governments were lower by almost 66 billion PLN due to various tax reliefs applied.

The cost was estimated based on value of 352 tax expenditures included in the study. However, according to authors of the report, there are more – 402 in state taxes and 71 in local taxes. Largest number of expenditures is found in income taxes (138 in PIT and 54 in CIT), which account for, respectively, 34 billion PLN and 7,6 billion PLN of forgone revenues of the public finance sector. Value of exemptions in local governments taxes has amounted to 6,3 billion PLN. The largest stream of public funds in form of expenditures goes first of all to support families (29 billion PLN), agriculture (nearly 9 billion PLN) and economy (over 7 billion PLN). It was also determined, that expenditures with greatest impact on budget revenues are: reduced (7 percent) VAT for construction and assembly works in the housing construction sector, child tax credit and joint taxation of married couples in PIT.

"One of the objectives of the report is to increase the transparency of public finance. Without full knowledge about scale, beneficiaries and forms of tax expenditures, the view of public finance is distorted " emphasizes the Undersecretary of State in the MoF responsible for tax policy, Maciej Grabowski. According to him, the report is to provide valid knowledge about tax expenditures, applied in Poland and help in identifying those which are still fulfilling their intended role. Therefore, the report cannot be treated as a prognosis for legislative changes.

"We are glad that we had an opportunity to help the Polish Government in tackling this important issue" said Thomas Laursen, World Bank Country Manager for Poland and the Baltic States. "The report prepared by the Ministry of Finance is a pioneering undertaking in the region. We are convinced, that it will contribute to increasing quality and transparency of the Polish tax system, increased efficiency of expenditures effected through the tax system, and strengthening public finance" he added.

First reports on tax expenditures have been created in 1960s in Germany and United States. They also have a long tradition in OECD countries, where preparing them is a common practice now. In Poland, in the first report of this type, the most frequently used methodology was applied, namely value of tax expenditures was estimated based on estimated forgone revenues. It is the intention of Ministry of Finance to prepare such a report annually.