On 5 March 2019, the Sejm received the governmental draft act amending the Value Added Tax Act and the Tax Ordinance Act. After a long while, on 3 July 2019, the Sejm decided to send the draft to the Public Finance Committee. Given the fact that the amendment includes significant changes of the VAT rates, it is a good idea to learn about the planned amendments today.
PKWIU 2008 REPLACED BY CN AND PKWIU 2015
At present, the identification of goods and services for the purposes of the Value Added Tax Act (hereinafter: VAT Act) is made on the basis of the PKWiU 2008 (Polish Classification of Goods and Services). As a result, the system of VAT rates based on it is extensive and complex, which makes this system difficult to use. Therefore, the draft amendment of the VAT Act provides for replacing the PKWiU 2008 with:
- Combined Nomenclature (CN) (it has been used for quite a while in customs matters in all of the EU) – for goods,
- PKWiU 2015 – for services (as CN only regards goods).
According to the amendment legislators, using the aforementioned classification will make it much easier to identify goods and services for VAT purposes.
INTRODUCTION OF BINDING RATE INFORMATION (WIS)
Another thing that will make the taxpayer’s life easier is supposed to be the binding rate information (in Polish: WIS). In line with the explanatory memorandum to the amendment, WIS is supposed to be an instrument ensuring greater certainty that VAT rates have been applied correctly, both for taxpayers and tax authorities.
WIS is supposed to take the form of a decision issued by the Director of the National Revenue Information Office for the purpose of VAT on the supply, import, intra-Community acquisition of goods and the provision of services. WIS shall include a description of the relevant goods or services, goods classification according to the CN, Polish Classification of Types of Constructions or a service classification according to the PKWiU along with the VAT rate applicable to these goods or services.
The WIS can be requested among others by a taxpayer who has a VAT number, as well as an Ordering Party within the meaning of the provisions of the Public Procurement Law, to the extent in which it affects the method of calculating the price in a public contract to be awarded.
What is more, the draft provides for a protective function of the WIS, which means that the information shall be binding for the tax authorities. Thus, if a taxpayer submits the WIS issued upon his or her request to a tax authority, this authority shall not have the right to challenge the VAT rate that was applied in line with such a decision.
If only the WIS works well, there is a chance it will bring new quality to the correct application of reduced VAT rates and exemptions. So far, the taxpayer used to be a victim of a certain deadlock: the rate was determined on the basis of the PKWiU classification. Despite numerous rulings in this field, tax authorities do not feel competent to provide binding information on the correct classification of goods and services, since this is a task of the Central Statistical Office. This office, however, is not a tax authority; hence it has nothing to say about the tax rate. And so the vicious circle goes on and on.
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NEW VAT MATRIX
The draft amendment of the VAT Act also provides for the introduction of a new matrix for VAT rates. Most of all, it provides for the same tax rate for entire chapters of the Combined Nomenclature (CN), as it is supposed to make this matrix easier to use, among others owing to a smaller number of items in appendices to the VAT Act featuring lists of products and services with reduced, i.e. 8 and 5 %, rates (Appendix 3 and 10, respectively).
As a result, some goods and services will have a different tax rate than they do now.
Among others, rates for the following products shall be reduced:
- tropical and citrus fruit, certain nuts (pistachios, almonds, coconuts) – from 8 to 5%,
- bread of all types, including biscuits (this will eliminate disputes over tax rates for these products; currently, depending on the ‘best-before’ date of a given product, it may be taxed at a rate of 5, 8 or 23%),
- books of all types (including those in electronic format, i.e. popular e-books) – to 5%, as well as newspapers, dailies and magazines to 8% (some of them are now taxed at the rate of 23%),
- products for infants and children (from 8 to 5%).
Under the draft, the tax rate shall be increased for lobsters and octopuses as well as other crustaceans, molluscs and aquatic invertebrates, and their products, along with caviar and meals containing these products (from 5 to 23%).
PROSPECTIVE DATE OF THE ENTRY INTO FORCE OF THE PRESENTED AMENDMENTS
Pursuant to the draft amendment, most changes (new VAT matrix, PKWiU 2008 replaced with CN and PKWiU 2015) shall enter into force as of January 2020.
However, in line with the draft, certain provisions (including the provision on the WIS issue) should have been in force as of 1 June 2019. However, as the works on the amendment continue in the Sejm, it is now difficult to tell when they will actually enter into force.
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Should you have any questions or need to discuss the topic further, we encourage you to contact our expert, Daniel WIĘCKOWSKI: