Towards a cadastral tax
Real estate tax is gaining the attention of an increasing number of entrepreneurs, so we will here discuss the changes recently made to real estate tax regulations, which came into force on January 1st 2003. Although apparently insignificant, these changes may prove important
The Act on Local Taxes and Charges, which governs the taxation of real estate, now contains long overdue definitions of some taxable objects. As the lawmakers point out, one cannot accept a situation where the subject of taxation, (fundamental to the setting of tax), is not defined in law and taxpayers are forced to rely on dictionary definitions or inconsistent judicial practice, to inform them of whether their real estate is taxable or not.
New definitions
We should also appreciate the attempt to define the concept of real estate
linked to business activity. The new definition is very broad, as it encompasses
all properties owned by an entrepreneur unless they cannot be used in business
for technical reasons. We expect that the present dispute will centre on the
meaning of the term 'technical reasons'. Should tax be charged at the highest
rate applicable to business-related land? Land for example, that has been
designed for development in a local spatial development plan but has not been
reclassified as 'non-agricultural' yet?
More responsibility
Since the beginning of this year, local councils have developed much broader
competence in real estate tax matters. They may reduce statutory rates, which
are set as upper thresholds only, with no lower threshold applicable any more (previously
the lower threshold was half that of the statutory rates). In addition, local
councils are now authorised to vary the rates of tax according to the location,
age, technical condition or actual use of properties.
The creation of "tax groups" seems to be the first step towards
varying the tax burden according to fair market criteria, which may have an
impact on the value of real estate. Combined with the electronic tax record of
real estate which is currently being implemented, the new right conferred on
local authorities, brings us closer to the cadastral tax system based on fair
market value and not the (usable) area of a property, which has been the case
until now.
Maximum rates
However, as practice shows, local councils have not yet taken advantage of their
new rights this year, at least in larger towns. >From the data we have
collected in several major locations in Poland, it follows that most local
councils have set maximum rates or close-to-maximum rates of real estate tax on
business-related properties. The only "group" variation applies to
large-area shopping facilities, for which local authorities have not considered
any departures from the statutory maximum rate, even if other entrepreneurs'
properties benefit from preferential taxation.
The cadastral tax system however, will not be implemented soon. The regulations
on the electronic tax record of real estate are scheduled to come into force on
1 January 2005; at best by that time, we will have a computerised record of real
estate in Poland containing all the information that is now scattered over real
estate registers, notarial deeds, spatial development plans and land registers
etc. However, a real estate tax system based on fair market value will not be
implemented until a general appraisal of all recorded property is carried out.
According to the most optimistic estimates, the so-called group taxation of all
real property in Poland (i.e. a collective appraisal of certain groups of
facilities, not individual properties) will take not less than 2 to 3 years. z
Piotr Wieliński, Łukasz Ziółek
Tax Advisers Real Estate Services Group, Ernst & Young
