Wednesday, 14 October 2015

I'm Payin' Taxes, What Am I Buying*

Monday's Rzeczpospolita somewhat belatedly broke the news that of all the 55 countries surveyed by OECD, the rich economies' club, Poland is third from bottom when it comes to the efficiency of its tax authorities. The information comes from OECD's Tax Administration 2015 survey, published... in August. The fact that the news has only made it to the front page of Poland's newspaper of record is either testament to the fact a) that OECD's press office is not particularly effective or b) that Rzeczpospolita's journalists are slow in picking up stories or c) that it's coming up to election time.

Anyway... The point is this. According to the OECD report, in the UK it costs 73p to collect £100 of taxes. In Poland, it costs 1.60 złotys to collect 100 złotys of taxes. In other words, Her Majesty's Revenue and Customs is more than twice as effective  as Poland's Urząd Skarbowy. Of the 55 countries surveyed, only Japan and Saudi Arabia performed worse than Poland.

The reason is clear to all who pay taxes in Poland and have any dealings with the Polish tax authorities. There's far too many resources wasted on chasing small amounts of money - tax audits of small businesses that end up costing tens of thousands of zlotys in staff time and letters and court costs etc - and the poor entrepreneur turned out to have diddled fiskus (intentionally or otherwise) to the tune of a few hundred zlotys.

Poland's tax regulations are opaque and they are interpreted differently in different tax offices across Poland. One may say - "Yes, that's a legitimate business cost", another may say "No - you are trying to fiddle the State - we'll see you behind bars for this you hochsztapler, you!"

As anyone who's faced a tax inspection in Poland, it is a stressful time. You really don't know what the outcome will be! With the best will in the world - and with the best tax experts at your side - the decision is a coin-toss. All down to interpretation. No clarity. No website that will inform you.

[Incidentally - what's the current VAT registration threshold in the UK? Click here, then here then here and within three intuitive clicks you are finally here, and you know it's £82,000. Now try the same thing for Poland... Start here - and I challenge you to find the information. Go on! I challenge you! I clicked 19 times before giving up. Can you find out what the VAT registration threshold is in Poland in less than 19 clicks?]

In the UK, demonstrating a lack of ill-will, a desire to help and basic honesty, coming clean to HMRC saying - "I made a genuine mistake here, based on my misunderstanding of x", followed by the correct payment, will see you right. In Poland, the entrepreneur in this situation may find himself dragged through the tax tribunal, his business destroyed, his workers without jobs - and at the end of the day the supreme tax court says that he was in the clear all along.

HMRC employs 63,800 people - roughly one person per every thousand UK citizens. Poland's tax office employs 48,800 people - roughly one person per every 750 Polish citizens. We clearly need to be more tightly controlled because we can't be trusted.

This control costs money. More inspectors - so what do they do? They inspect. These inspections often cost more than they bring in, because there's less focus on the big picture, an inability to see the wood for the trees. And inspectors, being only human ("Ile trzeba dać, aby nie dać?") need to be monitored, and those monitors themselves need to be checked for clean hands.

But has been progress. Should anyone in Rzeczpospolita think that publishing this damning indictment of the PO government's lackadaisical approach to reforming the tax administration will damage their chances at the polls, may I point out that the one zloty sixty it currently costs to bring in 100 złotys of tax revenue compares rather well to the situation when PiS was last in government (1.94zł/100zł in 2005 and 1.76zł the following year).

Poland deserves a better functioning state. In many areas, the private sector has overtaken its peers in Western Europe when it comes to competitiveness and even productivity. But the dozy urzędy need to move with the times and implement best practice - if the UK, a more populous country, a bigger economy, can collect taxes twice as cheaply as Poland does - it means there are lessons that can be learned.

On the same day as Rzepa led with this story, it emerged that Facebook paid less tax in the UK than my nonagenarian father, on UK sales of £105m. Now, while the social media company has stayed within the letter of law, the ethics of shifting costs from one country to another with a lower corporate tax rate is deeply questionable. I for one will stop using or visiting Facebook until such time as the company pays the full whack of UK corporation tax on its UK sales. Shifting profits offshore as transfers to other subsidiaries within the same group to pay for 'management costs' or 'intellectual property' or 'trade mark use' is plain bullshit and should be stopped by governments. Tax rules drawn up for the industrial age need to be urgently revisited.

* A great tune by The JB's...

This time four years ago
One stop beyond

This time five years ago:
Who am I? (Kim ja jestem?)

This time six years ago:
First snow, 2009. Ghastly!

This time seven years ago:
Train links to town improving

This time eight years ago:
A beautiful Sunday, south of Warsaw

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