The government plans to maintain the increased VAT rates at 8% and 23% in 2023 due to the planned surge in defense spending and makes their maintenance dependent on January 1, 2024. on the fact that the sum of defense expenditure exceeds 3% of GDP, results from the draft amendment to the act on corporate income tax.
The bill was approved this week by the government and submitted to the Sejm.
The draft in question assumes the continuation of the application of VAT rates increased by 1 percentage point in 2023 due to the planned abrupt increase in defense spending.
It was stated that in accordance with the regulations currently in force, the VAT rates increased by 1 percentage point are valid until the end of the year following the year in which certain macroeconomic conditions were met.
A return to lower VAT rates can only take place during a stable economic situation, i.e. when the original formula to stabilize the expenditure rule from the Public Finance Act is applied and its correction mechanism is simultaneously excluded, it was announced.
Meanwhile, the outbreak of the war in Ukraine and the related threats posed new challenges for the state’s fiscal policy. It was indicated that, as a result, it is extremely important for the state to take quick and adequate and targeted actions aimed at minimizing threats related to the current geopolitical situation. In particular, funds must be provided to increase spending on national defense in order to limit the impact of these activities on the sustainability of public finances.
Maintaining VAT rates at the current levels of 23% and 8% is necessary in connection with the armed conflict in Ukraine and the necessity to incur increased expenses by the state budget, it was reported.
The changes proposed to the VAT Act provide for the introduction of a mechanism from 2024 on the basis of which the period of validity of the VAT rates increased by 1 pp will be extended. This mechanism is to be correlated with the level of expenditure allocated to financing defense needs (if it exceeds 3% of GDP, the mechanism will be maintained).
“VAT rates increased by 1 percentage point will be applied on the basis of the new mechanism, starting from January 1, 2024 until the end of the year, in which the sum of defense expenditure precisely defined in the project, i.e.
– in art. 40 sec. 1 point 2 of the Act of 11 March 2022 on the Defense of the Fatherland (Journal of Laws, items 655 and 974) specified for this year in the Budget Act, in the wording in force on July 31 this year, and
– in the financial plan of the Armed Forces Support Fund submitted in accordance with Art. 42 sec. 4 of the Act of March 11, 2022 on the defense of the Fatherland or a draft of this plan submitted for approval to the Minister of National Defense in accordance with Art. 42 sec. 2 and 3 of this Act, if the plan has not been submitted in accordance with Art. 42 sec. 4 of this act
after excluding planned financial flows within this sum of expenses, it will be higher than 3% of the value of gross domestic product defined in art. 40 sec. 2 of the Act of March 11, 2022 on the defense of the Fatherland, it was reported.
The date of 31 July indicated in the regulations is determined by the schedule of works on the draft budget act for the following year. The level of rates determines the level of budget revenues and the state budget deficit, hence it is justified to indicate this date as a reference point for their determination, emphasized.
Source: ISBnews
