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Poland’s Fight Against VAT Fraud: Results and Side Effects Rafał Trzeciakowski, Economist Civil Development Forum (FOR), Poland September 3rd 2019

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Page 1: Poland’s Fight Against VAT Fraud: Results and Side Effects · Poland’s Fight Against VAT Fraud: Results and Side Effects RafałTrzeciakowski, Economist ... increasing tax compliance

Poland’s Fight Against VAT Fraud: Results and Side Effects

Rafał Trzeciakowski, Economist

Civil Development Forum (FOR), Poland

September 3rd 2019

Page 2: Poland’s Fight Against VAT Fraud: Results and Side Effects · Poland’s Fight Against VAT Fraud: Results and Side Effects RafałTrzeciakowski, Economist ... increasing tax compliance

Between 2015 and 2018 the Polish government introduced several measures aimed atincreasing tax compliance and fight with VAT frauds, that often involved selling goods in theshadow economy. As a result not only selling in the shadow economy, but also buying fromshady parties has become much riskier.

Source: Own elaboration

Governmental actions 2015-2018

Penalties

• Increase of penalties for tax offences offensesup to 25 years in prison for falsifying invoicesabove EUR ~2,3 (PLN 10 million)• Extension of joint and several liability – in caseof some goods seller and buyer are jointly liablefor VAT• Sanctions for unreliable VAT settlement in caseof heavy irregularities in a VAT settlement, thetax administration can apply fine equal to 100%of VAT• Extended seizure prosecutors can take overcontrol of companies if there is suspicion thatcompany assets are a result of crime

Detection & control

• Limitation of quarterly VAT settlements• Standard Audit File – SAF – automatic monthlyreporting• Split payment - mechanism divides thepayment for the goods or services into netamount and VAT, directing them to separateaccounts• Monitoring of transport of sensitive goods -register of transport of selected goods is kept inthe IT system by the National RevenueAdministration• Limit on cash transactions limit for cash B2Btransactions has been lowered from the EUR15,000 to EUR ~3,500 (PLN 15,000).

Selected measures

Page 3: Poland’s Fight Against VAT Fraud: Results and Side Effects · Poland’s Fight Against VAT Fraud: Results and Side Effects RafałTrzeciakowski, Economist ... increasing tax compliance

Number of people engaging in shadow economy%

Survey conducted for the project indicates a large fall in the number of people occasionallybuying in the shadow economy. Other available measures confirm shrinking of the shadowgoods and services market, but much smaller changes in the shadow labour market.

Source: Vytautas Žukauskas, Shadow Economy: Understanding Drivers, Reducing Incentives, LFMI (2018)

Short-term results

0%

5%

10%

15%

20%

25%

30%

35%

Regularly (10times or more)

Sometimes (up to10 times)

Rarely (once ortwice)

Regularly (10times or more)

Sometimes (up to10 times)

Rarely (once ortwice)

own expirience friends andrelatives

Buying goods/services without a receipt Buying goods/services from illegal sellers Working in shadow economy

2015 2018

Page 4: Poland’s Fight Against VAT Fraud: Results and Side Effects · Poland’s Fight Against VAT Fraud: Results and Side Effects RafałTrzeciakowski, Economist ... increasing tax compliance

GDP growth%

Strong growth of the main Polish trading partners supported growth of the Polish economy,which coupled with decreasing working age population caused the fall of unemployment rateto historical lows.

Source: Own elaboration based on European Commission data

Macroeconomic conditions

Unemployment rate%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Poland

Eurozone

0%

5%

10%

15%

20%

Poland

Page 5: Poland’s Fight Against VAT Fraud: Results and Side Effects · Poland’s Fight Against VAT Fraud: Results and Side Effects RafałTrzeciakowski, Economist ... increasing tax compliance

Private investment rateInvestment rate of corporations and households, as % of GDP

The new regulatory burden and increased penalties coupled with an attack on the rule of lawin Poland have made running businesses riskier. Despite cyclical upswing in the economy,private investment rate has fallen to the lowest levels since at least 1993.

*EC forecast Source: AMECO

Side-effects

12%

14%

16%

18%

20%

22%

Page 6: Poland’s Fight Against VAT Fraud: Results and Side Effects · Poland’s Fight Against VAT Fraud: Results and Side Effects RafałTrzeciakowski, Economist ... increasing tax compliance

Consumption % change 2015-2018

As a result of a consumption boom and increased tax compliance, tax revenue to GDP ratio hasincreased from 33.3% GDP in 2015 to 36.1% GDP in 2018, but at the cost of weak investment,likely undermining long-term growth prospects.

Source: Own elaboration based on Eurostat data

Long-term challenge

-12% 0% 12% 24%

MaltaRomaniaSlovakiaGreecePoland

BulgariaNetherlands

UKBelgium

GermanyEU

FranceCzechia

ItalyAustria

SpainSweden

LithuaniaIrelandCroatia

PortugalSlovenia

DenmarkEstonia

LatviaHungaryCyprus*

Investment% change 2015-2018

0% 5% 10% 15% 20% 25%

GreeceItaly

BelgiumFranceAustria

DenmarkNetherlands

GermanyEUUK

SwedenPortugal

SpainSloveniaSlovakiaEstoniaCroatia

LithuaniaIreland

CzechiaLatvia

HungaryCyprusPolandMalta

BulgariaRomania

Page 7: Poland’s Fight Against VAT Fraud: Results and Side Effects · Poland’s Fight Against VAT Fraud: Results and Side Effects RafałTrzeciakowski, Economist ... increasing tax compliance

Rafał Trzeciakowski

Economist

[email protected]

Civil Development Forum (FOR)

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