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