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March 17, 2005
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The Flat Tax May Spread to Poland Sooner than Expected

by Alvin Rabushka

For some time, the opposition Civic Platform party in Poland has proposed a 15% flat tax on individuals and corporations to replace the country's current income tax system. Personal income tax in Poland is assessed at three rates: after a tax-free threshold of about PLN 37,000 (zlotys), (about $12,200 at the current exchange rate of PLN 3.03 = $1), a rate of 19% is levied on taxable income up to PLN 37,027, 30% on the next PLN 37,024, and 40% on all income exceeding PLN 74,040. The current corporate tax rate is 19%. Elections are scheduled to be held later this year, which would permit the Civic Platform, if it emerges victorious, to implement a 15% flat tax beginning January 1, 2006.

Perhaps the country will not have to wait for a new election for the flat tax. The Telegraph of the United Kingdom reported on March 16, 2005, that the ruling center-left Polish government plans to enact a flat tax, joining the flat-tax revolution spreading throughout Central and Eastern Europe. Poland's minister of finance, Mirosaw Gronicki, is proposing an 18-18-18 solution: 18% flat rate on individuals, 18% on corporations, and 18% value-added tax (four percentage points less than the current standard 22% rate). The personal income tax will likely retain the current tax-free threshold.

The Civic Platform is likely to argue that its lower 15% rate would give Poland a competitive edge against Slovakia's 19% rate and newly-enacted Romania's 16% rate. Regardless of what rate is enacted, it's clear Poland feels the pressure of its neighbors in the quest for investment and jobs.

Poland is the largest of the new European Union countries. Its adoption of the flat tax will increase the pressure on the remaining holdouts in the regionBelarus, Bulgaria, Croatia, Czech Republic, Hungary, Macedonia, Slovenia, Belarus, and Moldovato respond quickly in kind, and Lithuania to get serious about slashing its high 33% rate on wages and salaries. It will certain get the attention of Germany and France, and, after that, who knows?