Poland is one of the few EU countries where property tax depends on its area rather than its value. Discussions about changing the system have been ongoing in Poland for decades, but they are primarily hindered by societal concerns about tax increases. However, experts argue that property tax hikes do not necessarily have to coincide with the change, and a new solution would be more equitable and beneficial for market transparency and local governments.
“There is no one perfect property tax system for everyone. It should be tailored to the specific community of the country. Both the property tax based on area and the tax based on property value have their pros and cons. The advantages of a value-based property tax predominate, hence the idea to start thinking about transforming this system in Poland,” evaluates Dr. MaÅ‚gorzata Renigier-BiÅ‚ozor, professor at the University of Warmia and Mazury in Olsztyn, Faculty of Geoengineering, Department of Spatial Analysis and Real Estate Market.
Prof. Renigier-BiÅ‚ozor is conducting research on the implementation of a cadastral tax, or a tax based on property value, in Poland, in accordance with the principle of “good governance” and in a manner gentle for taxpayers. The aim of the research is to create a “roadmap” for transforming the taxation system of land, buildings, and premises, so that any change in the tax base is gentle for taxpayers. For her research with the team from the University of Warmia and Mazury, she received a grant from the National Science Centre.
Currently, the size of the property tax in Poland depends on its area and purpose. According to a study published in the quarterly journal Studies by the Sejm Analysis Bureau (BAS), “Diagnosis and evaluation of selected directions for changes in the taxation of residential properties in Poland” by experts from SGH Warsaw School of Economics and Wroclaw University of Economics, the existing legal regulations in the area of property tax are almost universally criticized for its low efficiency and low level of tax fairness.
“It is very important that the system is more fair. Today, a person living in the countryside in a 100-square-meter property may pay more than someone living in a smaller area but in the city center with a huge property value,” explains the professor at the University of Warmia and Mazury in Olsztyn.
The current tax structure is also significant for local governments. Although municipalities have the right to set tax rates, the regulations only allow for lowering the maximum rates. Experts believe the maximum rates allowed by law are too low, considering the dynamics of changes in both, for example, the minimum wage and property prices, especially in the case of larger and wealthier municipalities.
In Poland, under the current system based on area, the tax is in no way linked to the increasing price of the property over the years. An analysis published in the BAS quarterly indicates that price increases and decreases are not correlated with changes in statutory rates in any of the cities. The largest rate increase recorded since 2015 is only 4.9 percent. Meanwhile, in the same year, the average transaction prices per square meter ranged from 9.4 to 30.3 percent depending on the city. In the years 2018-2022, the disparity between the percentage changes in property prices and tax rates, measured by the arithmetic average of price changes in the 17 largest cities in Poland to the rate change, was at least 2.6 times (in 2022) and even 3.7 times (in 2019). A value-based tax should increase municipal revenues. Local governments would receive more funds to allocate, thus investing more in local projects.
As highlighted in the Institute of Finance report “Property Taxation in Poland compared to European systems,” social consent is necessary to introduce a property value tax in Poland. Previous research observations indicate serious concerns about the cadastral tax, mainly due to fear of higher fees. This, in turn, requires preparing taxpayers for the new formula – e.g., through well-prepared and conducted educational and promotional campaigns, public debates highlighting its advantages and disadvantages, or information on how it will affect tax burdens.
“Information that the value tax will cause loss of homes or some mass poverty can be dismissed as myths. In our studies, we pay close attention, and the entire structure should pay close attention to so-called sensitive groups, such as the elderly or very young. This is how it works everywhere in the world,” emphasizes Prof. MaÅ‚gorzata Renigier-BiÅ‚ozor. “Importantly, it will not be strictly the market value of the property, but some approximate value, an official value, from which we will contribute this tax percentage. I can confidently argue that it may not be more than we pay today.”
In countries where the property tax system depends on its value, the tax rate ranges from 0.18 percent to 3 percent of the property’s value. The IF report assesses that a tax set according to the property’s value could be considered more fair when introduced together with a system of exemptions and preferences for taxpayers. Based on experiences from other countries, these could be directed to social institutions, religious facilities, public-use properties, but also to specific taxpayer groups like students, seniors, disabled persons, large families, or veterans.
“The key thing is to ensure legal protection for taxpayers. One such possibility is the ability to appeal the established cadastral, official value, which everyone can freely apply to their situation,” the expert convinces. “The direct impact of the tax system transformation on the value of the property will not translate directly from day to day into the property’s value itself. In the longer term, the real estate market may be affected, but everything depends on how it will be determined and what percentage of the value will be involved.”
As the researcher emphasizes, a different method of calculating the tax does not have to affect the property’s value itself. Above all, thanks to a top-down system, the value of each property would be transparent.
“Mass appraisal and published property value, and publicly, will mean that we will all have the same knowledge regarding the property value, a better and more advanced system for selection and data collection. This is crucial for regulation in the real estate market,” stresses Prof. MaÅ‚gorzata Renigier-BiÅ‚ozor.
The discussion on the necessity to introduce a property value tax in Poland has been ongoing for at least 30 years. Recently, the International Monetary Fund indicated that increasing revenues from the property tax to a level similar to other EU countries is one of the ways to quickly improve Poland’s public finances.