By November 2021 The Ministry of Finance declared that ‘the government does not plan to introduce cadastral tax’, i.e. a common tribute to the value of the property. However, the situation may change due to the worsening economic situation of Poland, caused by the ongoing 11 March 2020 Coronavirus pandemic (Sars-CoV)[2]), as well as high inflation caused, among others, by the outbreak of war in Ukraine.
The pressure to save stable economic growth may lead the government to look for an additional source of funding for aid schemes, including the introduction of additional public tributes, i.e. cadastral tax (ad valorem) which is one the form of property taxation, which assumes that the property owner should pay a tax whose rate depends on the value of the property.
What are the advantages and disadvantages of introducing cadastral tax?
The advantages include:
- additional revenue to the State budget,
- more likely to adopt local spatial planning plans,
- reduction of public spaces;
- limiting the purchase of real estate for speculative investment purposes by investors,
- limiting the so-called grey local tax area.
The disadvantages of cadastral tax include:
- significantly increase the tax burden on property owners,
- need to change the model of putting savings (for people with more than 1 property,
- a lack of correlation between the taxpayer's income and tax, which may consequently force taxpayers to sell properties whose value has increased rapidly or which they have inherited from the nearest,
- limiting the interest in improving the technical status of the property by their owners, which would entail taxing the taxpayer,
- increase in average rent rates resulting from the attempt to shift the burden of cadastral tax to tenants,
- deepening the lack of trust of taxpayers in the legislature introducing revolutionary tax changes for taxpayers without gradually preparing taxpayers for changes; i.e. lack of continuity of the tax system,
- cutting off the middle class from the possibility of real estate savings without visible investment alternatives, which could lead to a decline in this social group.
Is it worth introducing an additional public tribute?
These arguments should also be considered from a fiscal perspective and from a taxpayer perspective. The preliminary analysis clearly shows that all the arguments for the implementation of the cadastral tax are particularly valuable to the tax.
On the other hand, arguments against the implementation of cadastral tax are relevant for taxpayers.
This state of affairs means that the legislator's attempt to implement the cadastral tax will be mainly motivated by the desire to obtain additional funds to meet the politically relevant objectives, rather than preferring to implement solutions relevant to the public good in general.
Importantly, the assessment of the appropriateness of the implementation of the cadastral tax should be based primarily on the direct effect of the tax. Issues indirectly linked to the introduction of a new public tax, i.e.
reducing the amount of voids in public space, a greater chance of adopting the Local Spatial Planning Plan or limiting the purchase of property for speculative investment purposes by investors should not constitute the legislator's main argument, but only additional, ancillary.
There are a number of other possible tools that could benefit this area of public life, not necessarily by imposing an additional cadastral tax on all property owners. This issue requires, in particular, an in-depth legal and economic analysis.
Author: Maksymilian Kulczycki
The author is a graduate of the Kozminski Academy in the field of Law and Finance and Accounting. From 2022 Associated with Russel Bedford Poland. In 2018 He completed his bar application at the District Bar Council in Warsaw. In 2019 obtained a positive result from the bar exam. His professional interests include the law of commercial companies, in particular mergers and acquisitions, conversions and tax law, in particular corporate income tax.