Agricultural tax in Poland and its prospects for change

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1 Agricultural tax in Poland and its prospects for change Piotr Gołasa 1 Abstract: This article presents the current structure of agricultural tax, related problems and proposed directions for reform. The second part presents the amount of agricultural tax charges, depending on the type of farm and economic size based on data for individual farms from the FADN. Key Words: agricultural tax, tax reform Introduction During the last years, in Poland, there is a discussion on changes regarding the financial charges on agriculture. Its a very interesting example is the exposé of Prime Minister Donald Tusk of 18 December He announced a far-reaching changes in the system of agricultural insurance and the introduction of income tax for persons engaged in agricultural activities. This is the result of the common belief, that the charges of farmers are on a low level or that the farmers do not pay taxes. Real situation is somewhat more complicated. Material and Methods In the first theoretical part of the article was used a method of literature study. In the empirical part, data about individual farms collected by the Institute of Agricultural and Food Economics - National Research Institute under the system FADN for the years which are from households. In the FADN field of observation were holdings located in group, generating in the region or country at least 90% of the standard gross margin. Lower threshold boundary of economic size is determined in such a way that, based on summing the values of SGM 2 holdings located in national register of holdings, starting from the biggest up to the last, a comprehensive 90% of the SGM. For this reason, the economic thresholds for defining the minimum size of farms included in FADN field of observation are vary in different countries. In Poland, the limit is 2 ESU. 1 Faculty of Economics, Warsaw University of Life Sciences, Warsaw, Poland 2 ESU is established using standard gross margins (SGM) of farm (all activities undertaken on the farm). One ESU corresponds to 1200 euros. Formally regulated by the European Commission Regulation No 730/2004 of 19 April SGM is the average of three years, the production value of the specified agricultural activity reduced by average (over three years) the direct costs incurred in its production.

2 According to the methodology of FADN distinguishes seven types of farms. Type AB (field crops) is a farms producing mainly cereals, and less focused on growing potatoes and livestock production. They are characterized by a much larger area of agricultural land than the average population (the largest among all types) and economic size similar to the average. Type C (horticultural) has the smallest average agricultural area but has the highest economic size. This is due owned crops which for the most part are vegetables and flowers with large values of SGM. Type E (permanent crops) are farms which an aim is the fruit-farming production of the agricultural area well below the average and low economic size. F-type dairy cows: farms focused on milk production, agricultural area close to the average, very low economic size. In type G (animals fed in the graze system ) the main portion of the production comes from the production of milk and milk products from cow milk and to a much smaller proportion of cereal production. These households have agricultural area close to the middle and large size of the economy. Type H (hay eating animals) have the highest economic size of all types and area of agricultural land close to the average. They are aimed at the production of pork, poultry meat and eggs. The last of the type I (mixed) is a farms without a dominant line of production of low economic size and the size of the average agricultural area. The results of research - theoretical part A special place among the agricultural tax is charged to the agricultural tax. In its present form it has functioned since It was introduced by the Law on agricultural tax of 15 November Basics of functioning have been developed at the Institute of Soil Science and Plant Cultivation in Pulawy and at the Institute of Agricultural and Food Economics in Warsaw. The primary objective was adopted to reduce the impact of tax differential rent and results of farming 3. The object of taxation is the utility value of land. Tax base is the amount of usable land, which is fixed by multiplying the acres of natural and appropriate conversion factors. Calculated like this the basis is applied to agricultural land of the farm. In the case of agricultural lands which are not included in the household, the tax base are physical acres. This solution was implemented from 1 January The amount of the conversion factors depends on quality of soil and its location in the tax districts. 3 Podstawka M., Warszawa Poznań 2005, Podatek rolny od gruntów Jego ocena i potrzeba zmian, Roczniki Naukowe SERIA, Tom IX, zeszyt, s. 347

3 For each districts communities were classified according to: - Valorisation index of agricultural production area (developed by IUNG); - A measure of the economic development of communities ( determined by 26 factors developed by the IERiGŻ. The following factors decided about valorisation rate of agricultural production: - Soil conditions, - Water relations - Terrain, - Agroclimate. The maximum rate of agricultural tax was, depending on the type of land equivalent of 2.5 quintals of rye for one conversion hectare of land belonging to the farms and 5q rye for 1 ha of physical lands classified as outside the agricultural holdings 4. A value of 1 q rye was established on the basis of statement of CSO President, calculated according to the average purchase price of rye in the first three quarters of the year preceding the tax year. The agricultural tax structure there is a long list of concessions and exemptions. The most important investment relief in respect of military service, for the use of agricultural land situated in the foothills and mountain areas, in connection with the disaster. Since the launch of agricultural tax in force revealed a few problems with it. The first one is too strong determination of the tax by the quality of the soil. This was caused of the fact that most probably the qualifications of the individual communities to tax districts, were not taken into account in practice, the indicator of economic development communities, and the only valorisation index of agricultural production area (where the 122 points possible for community to acquire land was valued at 100 points) 5. This means that the tax assessment directly determines the soil class, and pass into the district where the soil quality had the largest share. The main problem associated with agricultural tax, however, is its height. When was created the basis of this system the amount of charge associated with the price of rye, it was the 4 Dziemianowicz R.I., Białystok, 2007, Efektywność systemu opodatkowania rolnictwa, wyd. Uniwersytetu w Białymstoku, s Podstawka M., System finansowy w rolnictwie na tle integracji Polski z UE, FAPA, Warszawa 2000, s.107

4 primary agricultural product. However after twenty years in Polish agriculture tremendous changes have taken place. Rye was a marginal product, and its price has evolved in a way almost independent of inflation. Average procurement price of rye, first for the third quarters of 2008 amounted to zł / dt. For comparison, in 2005 it was zł / dt and in zł / dt 6. A. Hanusz concludes that real tax charge on agriculture has been steadily decreasing in comparison with the value of net production 7. This situation has made the agricultural tax has lost its meaning and does not fulfill its primary function, which is to provide revenue to communities. The share of agricultural tax in the income communities stands at around 2%. In 2008, revenues from the agricultural tax amounted million zł, which is a small amount compared to other taxes. Considering these problems, and associated with the crisis of public finances need to increase revenue to the state budget were created two main proposals for tax reform in agriculture: - Introduction of income tax In the current tax system, with the exception of tax on special sectors, farmers are not charged other income taxes. This raises serious concerns and objections, as exemplified by the report Busines Center Club 8. According to the exclusion from taxation of agricultural activity is contrary to Art. 32 of the Constitution speaks of equality of citizens before the law 9. Leaving aside the validity of economic arguments in this report (the income situation of farmers is shown in the example of 2007, which as a result of high food prices caused, adverse weather conditions in the world was extremely beneficial) should be noted that this situation violates recognized by economists, tax rules, in particular principle of horizontal equity. It boils down to the fact that two identical entities in the same conditions must be treated for tax in the same way 10. Another argument in favor of income tax is given by Gomoułowicz A. and J. Malecki believing that low "symbolic taxation" is an invitation to use the people who have nothing to do with agriculture, which acquired the land for speculative purposes only Komunikat Prezesa Głównego Urzędu Statystycznego z 17 października 2008 roku w sprawie w sprawie średniej ceny skupu żyta za okres pierwszych trzech kwartałów 2008 r 7 Hanusz A., Lublin, 1996, Polityka podatkowa w zakresie różnicowania obciążeń dochodów rolniczych w Polsce, wyd. UMCS, s Duczkowska-Małysz K., Duczkowska-Piasecka., Warszawa, 2008, Raport w sprawie KRUS, BCC, s.4 9 Konstytucja Rzeczypospolitej Polskiej z dnia 2 kwietnia 1997, Dz.U. z 1997 roku, Nr 78, poz. 483; 10 Grądalski F., Warszawa, 2006, System podatkowy w świetle teorii optymalnego opodatkowania, SGH- Oficyna wydawnicza, s Gomułowicz A., Małecki J., Warszawa, 2006, Podatki i prawo podatkowe, wyd. LexisNexis, s. 619

5 - The introduction of a cadastral tax (in lieu of property, agriculture, forestry taxes) Cadastral tax, as proposed by L. Etelä should be based on property valueresulting from the real estate cadastre and cover both land and buildings andstructures. The maximum rate of interest would be determined by law and thecommunities councils, have the right to decrease 12. Such a solution would bringthe property tax system into line with EU countries 13. Another advantage of this solution would be more appropriate spacious allocation of goods, since the introduction of a cadastral tax would force the sale of many properties.appears in these hard states, "If you do not have money to maintain your property, then sell it and buy cheaper" 14. Before this approach warns M. stand. Carrying out the 2002 simulations the effects of a cadastral tax for the orchard farm area of 13 ha, and assuming the minimum prescribed by the Ministry of Finance tax rate of 0.05% predicts over elevenfold increase the tax charge from zł to zł. Although it is a more equitable tax system than currently exists, should be extremely cautious in its implementation 15. It was a very accurate observation, especially taking into account the specificity of agriculture (farming in a relatively large properties) and a significant increase in property values that occurred after the Polish accession to the EU. The introduction of a cadastral tax will surely contribute to the revenue growth of communities, but it can not be diverted from the collapse of the farm 16. The results empirical part In this section presents the amount of agricultural tax charges, depending on the type and economic size of farms in Diagram 1: The amount of agricultural tax, depending on the types of agricultural holdings in the years Etel L., Reforma systemu opodatkowania nieruchomości, Raport nr. 155, Kancelaria sejmu, biuro studiów i analiz, IV/99, s Etel L., Warszawa, 2003, Ogólna charakterystyka systemów opodatkowania nieruchomości, [w:] Etel l., (red), Europejski system opodatkowania nieruchomości, Wydawnictwo Sejmowe, s Hozer J., Kokot S., 2005, Problem powszechnej taksacji nieruchomości w Polsce, Zeszyty naukowe Uniwersytetu Szczecińskiego, nr 415,, s Podstawka M., Warszawa 2002, Sytuacja majątkowa i dochodowa polskiego rolnictwa (tezy referatu na posiedzeniu Rady Strategii Społeczno-Gospodarczej przy Radzie Ministrów) [w:] Nierówności dochodowe i majątkowe. Zakres i formy redystrybucji dochodów państwa, Oficyna Poligraficzno-Wydawnicza Wasgraf, s Biała księga podatków, Analiza obecnego systemu podatkowego. Propozycje zmian Ministerstwa Finansów, Warszawa, 1998, s. 48

6 4 000,00 zł 3 000,00 zł 2 000,00 zł 1 000,00 zł 0,00 zł AB C E F G H Definitely the highest agricultural tax charge falls on the farm type AB and during research period, it increased from 2215 zł to 3477 zł per year. In other types of the lowest annual agricultural tax is observed in type C, which is the result of the smallest average size, and the weaker soils. The lowest level of taxation for all farms took place in 2006, which was caused by a wide use of tax incentives 17. Agricultural charging compared to other taxes in 2008 presents the Diagram 2 Figure 2: Average rate of agricultural tax and taxes in 2008, depending on the type of agricultural 4 000,00 zł 3 000,00 zł 2 000,00 zł 1 000,00 zł Podatek rolny Wszystkie podatki 0,00 zł AB C E F G H I With the exception of C and H the agricultural tax charges are approximately 90% of the total tax charges of households. Diagram 3: The amount of agricultural tax, depending on the economic size of farms in Gruziel K.,, Warszawa, 2009, Zróżnicowanie obciążeń podatkowych z tytułu podatku rolnego w indywidualnych gospodarstwach rolnych. [w:] Zeszyty Naukowe SGGW, Ekonomika i Organizacja Gospodarki Żywnościowej, nr 79 (2009), wyd. SGGW, s. 153

7 8 000,00 zł 6 000,00 zł 4 000,00 zł 2 000,00 zł 0,00 zł <4 ESU 4 do 8 ESU 8 do 16 ESU 16 do 40 ESU 40 do 100 ESU pow 100 ESU The charges of agricultural tax are characterized by high range, depending on the economic size. This is due to strong differences in the surface of the researched households (average 8 ha for small group and 220 acres for farms with the largest economic size). A characteristic feature of large farms and very large is relatively high share of taxes other than the agricultural tax which shows the diagram 31. Diagram 4: Average rate of agricultural tax and taxes in 2008, depending onthe economic size of farm 8 000,00 zł 7 000,00 zł 6 000,00 zł 5 000,00 zł 4 000,00 zł 3 000,00 zł 2 000,00 zł 1 000,00 zł 0,00 zł <4 ESU 4 do 8 ESU 8 do 16 ESU 16 do 40 ESU 40 do 100 ESU pow 100 ESU Podatek rolny Suma podatków With the increasing of the economic size of agricultural tax the share in the total tax is reduced, although it still represents 91% of large farms and 74% for extra large. This means that these farms are subject to also other taxes, particularly the tax on special branches. The theoretical part of the article noted, the agricultural tax charge is low. This is confirmed by empirical data presented in Diagram 5 Diagram 5: Charges the incomes of agricultural tax in

8 4,00% 3,00% 2,00% 1,00% 0,00% Agricultural tax is the main tax charge of households. However, in relation to their income is not low because during the research period ranged from 2% in 2004 to 3.4% in These values are much lower than tax charges in other sectors of national economy. Conclusion Introduced almost 30 years ago, the agricultural tax is an institution that needs big changes, because at that time stopped fulfill its basic functions. Open question is the question of which direction to go awaited reform (introduction of income tax in agriculture, cadastral). Regardless of the chosen solution is expected to increase the charges of agriculture. However, this is an extremely complex problem touching a large social group. Hence there is a need for additional studies to determine the long-term effects of proposed reforms. References 1. Duczkowska-Małysz K., Duczkowska-Piasecka., Raport w sprawie KRUS, BCC, Warszawa, Dziemianowicz R.I., Efektywność systemu opodatkowania rolnictwa, wyd. Uniwersytetu w Białymstoku, Białystok, 2007, 3. Gomułowicz A., Małecki J., Podatki i prawo podatkowe, wyd. LexisNexis, Warszawa, Grądalski F., System podatkowy w świetle teorii optymalnego opodatkowania, SGH-Oficyna wydawnicza, Warszawa, Hanusz A., Polityka podatkowa w zakresie różnicowania obciążeń dochodów rolniczych w Polsce, wyd. UMCS, Lublin, 1996, 6. Podstawka M., Podatek rolny od gruntów Jego ocena i potrzeba zmian, Roczniki Naukowe SERIA, Tom IX, zeszyt 1,Warszawa Poznań Podstawka M., System finansowy w rolnictwie na tle integracji Polski z UE, FAPA, Warszawa 2000, s Etel L., Reforma systemu opodatkowania nieruchomości, Raport nr. 155, Kancelaria sejmu, biuro studiów i analiz, IV/99

9 9. Etel L., Ogólna charakterystyka systemów opodatkowania nieruchomości, [w:] Etel l., (red), Europejski system opodatkowania nieruchomości, Wydawnictwo Sejmowe, Warszawa, Hozer J., Kokot S., Problem powszechnej taksacji nieruchomości w Polsce, Zeszyty naukowe Uniwersytetu Szczecińskiego, nr 415, Podstawka M., Sytuacja majątkowa i dochodowa polskiego rolnictwa (tezy referatu na posiedzeniu Rady Strategii Społeczno-Gospodarczej przy Radzie Ministrów) [w:] Nierówności dochodowe i majątkowe. Zakres i formy redystrybucji dochodów państwa, Oficyna Poligraficzno-Wydawnicza Wasgraf, Warszawa Biała księga podatków, Analiza obecnego systemu podatkowego. Propozycje zmian Ministerstwa Finansów, Warszawa, 1998 Contact Address Dr Piotr Gołasa, piotr_golasa@sggw.pl ul. Nowoursynowska 166, Warszawa, Wydział Nauk Ekonomicznych, Katedra Polityki Europejskiej Finansów Publicznych i Marketingu