Tomasz Dominiak, Wojciech Drzewiecki, SAMAR: What are the Ministry of Finance plans toward passenger cars with LCV homologation? Maciej Grabowski, Ministry of Finance: We are awaiting for a formal approval of VAT rules change from the European Commission. We would like to restrict VAT deduction for purchase of passenger cars with LCV homologation for the years 2010-2012.
When exactly these changes are going to be introduced? That depends on formal decision from the European Union and subsequently on legislative process in Poland. In a fairly optimistic scenario EC will give out a decision somewhere in February next year and in June we will be able to pass the new law in the Polish parliament. An additional month should be included for a temporary period during which these rules are officially published but are not effective. In the case of suspending EU law such procedure is longer than when it comes to suspending VAT deduction for fuel, where we basically had to notify the European Commission.
Yes, since we want to limit all preferences of passenger cars with LCV homologation, including fuel VAT deduction. We are working on a new solution that would limit this kind of deduction in the VAT included in the price of fuel. This new proposal should be approved by the government.
The Ministry of Finance originally wanted to introduce a more strict limit on fuel from January 2010. What is the schedule of VAT rules change?Indeed, those rules were supposed to be introduced from next year on, but we failed to pursuade the government to do so. We will seek approval once again for changes on both fuel and on purchase of passenger cars with LCV homologation as well. Hence, both VAT rules – for fuel and for cars – should be introduced together. By doing this we will even tax rules for passenger cars and their LCV homlogated versions. This means that whathever the version, a company will be eligible to deduct a limited amount of VAT from car purchase. The current deductible amount is currently 60% of VAT but not more than 6k PLN. As I mentioned before, a similar amount of VAT will be deductible in the case of fuel.
When exactly passenger cars with LCV homologation are going to have a limit on VAT deduction?Given all the time constraints and procedures in the EU as well as in Poland, July 2010 is a realistic date. We have to keep in mind that not all is within our control. In theory the European Commission could even not allow to change tax rules for passenger cars with LCV homologatio, but I think this is not very probable.
What about cars that have leased and their respective VAT rules will change during the lease agreement? In the case of leasing we will respect all rules that were applicable before the change, at the time of signing such agreement.
Some of the companies bought passenger cars with LCV homologation using cash or credit. Will there be any tax conseqences if they decide to convert such cars back into „normal” version, when new rules on VAT are introduced? These vehicles will have no tax preferences but their functionality will be limited.There should be no tax consequences for converting this kind of car. However, there is still the registration issue. I think that a conversion from LCV back to passenger version should be possible, but this is a questions for the Ministry of Infrastructure.
Why would you want to limit VAT deduction for companies in the first place? This will ultimately lead to an increase of cost for many of them. Will there be any more changes in the rules of buying and using fleet cars?What we want to achieve is to cancel the current priviledges of passenger cars with LCV homologation. There are no fundamental differences between such car and its passenger version and therefore there are no reasons to treat them differently when it comes to taxation. I would like to point out that vehicles designed specifically for company service, e.g. lorries, will retain their current VAT exemption status. We would like to suspend VAT rules only for passenger cars with LCV homologation for the years 2010-2012. We hope that limits on VAT deduction for cars purchased by companies and fuel should become an official part of EU law and that later on such changes will be sustained.
What about the proposition of taxing private use of company cars?These changes are likely to be effective from 2011, since we were not able to introduce them this year and we can’t do it during a given tax year, e.g. in 2010. Therefore our proposal published in August 2009 is still valid. There is no doubt that by allowing a car company to be used by employees, the company itself is providing an additional service that should be taxed. This service will be VAT free to avoid double taxation. Even today there are taxation rules about private use of company car but they are not fully obeyed. These issues must be finally regulated.
There was a rapid increase in excise duty for new cars with engine capacity above 2 liters a year ago due to the financial crisis. Since the economy is revovering and in Poland we even have GDP growth, is there any chance to restore lower level of excise duty for such cars?As far as I’m concerned, there are no plans to do. Howeve, there is no doubt that excise duty should be sooner or later replaced with some kind of ecological tax. Our current tax level has no incentives to replace old cars for newer ones.
Maciej Grabowski graduated from University of Gdańsk with a Master’s degree in Economics. He has also a PhD degree in Economics, which he earned at the same University. He was the vice chairman of the Gdańsk Institute of Market Economics for 18 years, where he conducted research into tax system, socio-economic transformation and labour market. 
