“Tax reform shouldn’t take three months or a year, it should take an entire term. So far, there’s been a lack of courage to get it done,” says Szymon Parulski, tax expert at BCC, during the “Tax Predictability for Businesses” panel at the Economic Forum in Karpacz. Tax advisors debated on what needs to be done now that the economic situation has forced the government to look for new sources of budget revenue. They unanimously highlighted the need for predictability in tax policy, citing recent proposals for changes in excise tax as an example of what not to do. Mainly, businesses and investments are suffering from this.
“In Poland, we don’t really have a stable legal and regulatory environment. We have one that oscillates, depending on the election results, from one extreme to another. At the end of the day, however, it’s the entrepreneurs who pay the taxes. If we don’t have legal certainty, it’s hard to talk about investing, and what we lack most for economic growth is investment. Consumption will not fix this. So, let’s appeal to the administration to be predictable. Let’s respect agreements; they’re not just for the voters of a given political party, they’re for entrepreneurs, and it’s them and us – salary earners – who pay taxes,” says Prof. Konrad Raczkowski of UKSW, one of the panelists, in an interview with Newseria Biznes.
He stressed that every new government has the right to make changes, but caution is needed. One negative example he gave is the hastily introduced deposit system with minimal vacatio legis, when neither the law nor the business, especially trade, are ready for the implementation of new solutions from January 2025.
“We need to encourage direct economic investment, and nobody will come to any country if there is no legal certainty here,” said Prof. Konrad Raczkowski during the debate. “When an investor wants to invest, they calculate: on what grounds, on what terms, in what perspective, they check what is the legal climate for investing. If the government can provide such a climate, then the investor feels safe and invests, because it is secure. In countries like Liechtenstein, Austria, or Benelux, they simply agree with the taxpayer on the terms on which they will invest,” he added in a comment after the debate.
Legal instability, especially in taxation, has been one of the main barriers to doing business in Poland for years. In last year’s study by the Confederation of Leviathan, 51% of domestic entrepreneurs cited this factor. In 2019, this percentage was 36%. The instability of the Polish legal-tax system is also confirmed by regular reports from Grant Thornton. According to the company’s analysis, over 1,600 modifications to regulations governing economic activity were introduced in Poland in 2023 alone. New economic and tax regulations are also being introduced more and more quickly — last year, the vacatio legis for tax laws was shortened to a record 31 days.
“Taxes can’t be changed in three months or a year; it can probably be done in one term. It should start with the government promising that there won’t be any changes in the first year. After the first year, I would expect the government to declare its tax policy. This is basically an indication of where we will be getting money from: whether we will continue to rely on indirect taxes, such as VAT and excise duty, as we have been doing so far, or whether we will do something with income taxes. We also need to end the taboo on property taxes, because we are no longer a developing country,” says Szymon Parulski. “The second year should be used to build a project of regulations, but not in a piecemeal manner. Another issue is to debate with all interested parties: companies, industry organizations, etc. The third year is the real vacatio legis, or time to adapt, because business cannot be taken by surprise. This should be at least six months from the enactment of the regulations. That’s the ideal we should strive for.”
As the BCC tax expert emphasized during the debate, it’s now or never for such reflection, as there are nine tax laws from various areas in the pipeline, to be passed this year.
“This is a crucial moment,” says Szymon Parulski. “If we make a bad start, it will be difficult to have later discussions with entrepreneurs.”
“Predictability occurs when the entrepreneur has some period of time in which they know what to expect. Even when it comes to changes. Here, we have the example of the excise map. It was created for two products: alcohol and tobacco. Less than three years later, it has been turned upside down for tobacco products. The share of excise tax in tobacco products is the highest of all. Moreover, it is a product prone to the collapse of legal sales due to the gray market. This is not the right way,” said Krzysztof Flis, tax advisor at Baker McKenzie, during the debate.
In Poland, at the beginning of 2022, the so-called excise map or agreement on the gradual increase of excise duties on tobacco and alcohol, negotiated by the Ministry of Finance following long consultations with the market, came into force. For tobacco products, the plan provided for a uniform 10% annual increase in excise duties on cigarettes, smoking tobacco, and inserts for heaters until 2027. This was supposed to guarantee higher revenues for the state budget, while allowing the tobacco industry, struggling with the gray market issue, to predictably operate within a framework where it took ten years to finally curb illegal operations.
However, the new Ministry of Finance decided to cancel these arrangements. At the beginning of July, the Ministry announced new excise hikes for tobacco products, and their scale is set to be several times larger than the map provided for. According to these announcements, in March 2025, the excise tax rate will increase by 25% for traditional cigarettes, 38% for smoking tobacco, and 50% for heater inserts. A novelty is that the hikes will also include so-called liquids, i.e., liquids for e-cigarettes, with the next year’s excise tax increase – 75% – being the largest.
“The Ministry of Finance changes the rules of the game and breaks the social contract with the tobacco industry after just three years of its existence. And this raises serious concerns about further cooperation, because the tobacco industry has invested huge funds in Poland and also pays huge sums in taxes to the state budget. So, we hope that these changes will not be so drastic, there’s still time for reflection,” Parulski tells the Newseria agency.
“Introducing new, higher excise rates on tobacco products is a breach of the agreement with entrepreneurs. And such a significant change – because we are talking about hikes of the order of 30% instead of the previously agreed 10% – will translate into higher costs for these businesses,” adds Krzysztof Flis.
Estimates by the National Association of Tobacco Industry show that – after the introduction of the changes announced by the Ministry of Finance – in 2022–2027, cumulative increases in excise duties for traditional cigarettes will amount to 109%. In comparison, the so-called excise map predicted cumulative hikes of 61% in this period.
Planters and tobacco manufacturers, employers, trade unions, retail trade, and small and medium national enterprises operating in the segment of innovative tobacco products do not hide their fears and disappointment that the Ministry of Finance – without any prior warning to the market – wants to abandon a compromise plan that was supposed to provide them with predictability and business continuity. Experts point out that this undermines trust in the state and discourages businesses from investing in the domestic market. Importantly, this not only applies to the tobacco industry, but also other sectors, which are watching the situation closely.
“This predictability and tax stability is necessary for planning, because entrepreneurs do not live from day to day, they have to plan their activity in both the short- and long-term perspective. And we know that taxes significantly influence the profitability and operating costs of businesses, so stability in this area is highly sought after,” adds a tax advisor at Baker McKenzie.
According to the Ministry of Finance’s calculations, after the hikes, the retail price of a 20-pack of cigarettes will increase by approximately PLN 2.7–3.1 in 2025–2027. In the case of e-cigarette liquids, the estimated increase in retail price is approximately PLN 4.4–5 per year for the 10 ml package. The cost of this product will exceed PLN 23 next year, exceeding the cost of a pack of traditional cigarettes, and in three years, it will be almost PLN 33.5. The ministry estimated that the hikes will bring in PLN 4.2 billion to the state budget in excise and VAT on tobacco products next year. In 2026, this amount is projected at PLN 4.3 billion, and a year later – PLN 4 billion. However, experts are cooling these expectations, noting that, in practice, such significant and sudden excise hikes might result in a decrease in legal consumption of tobacco products and an expansion of the gray area (the price difference between legal and illegal cigarettes will exceed PLN 10).
“Consumers will once again turn to illegal products, and these – let’s be honest – pose a health threat, as they are produced under unknown circumstances,” warns Szymon Parulski.
In this scenario, revenues to the state budget – instead of increasing – may be even lower than before the hikes. Such a situation occurred in Poland in 2012–2014, when – following a large excise hike – legal cigarette sales collapsed, by 10 billion units in just three years. As a result, the budget lost about PLN 1 billion, and the growth of production in illegal factories hit the legally operating part of the market. Recently, a similar situation occurred in other countries, including the Czech Republic, Hungary, Lithuania, Estonia, Finland, and France, which – after a series of cigarette excise hikes – are grappling with a significant increase in the gray zone.
