Agricultural Activity in Poland: A Fiscal and Legal Study

Preface

In the era of economic globalization, individual states try to pursue effective agricultural support policies. There is a variety of instruments which can be used to influence agriculture. One of such instruments is an adequate tax policy design.

Undoubtedly, tax law solutions occupy an important place in the wide range of legal instruments that shape broadly understood agricultural activity. However, we should note that the concept of agricultural activity has no clear definition. Depending on the importance of agriculture to a given economy and other conditions (e.g. climatic, geographical, and infrastructural), various conceptions of taxation of such activity are used in practice. What appears crucial is the manner of taxing income from agricultural activity. Typically, this kind of activity remains subject to a specific form of income tax or land tax. This last concept is somewhat older and widely used, especially in socialist countries. Income tax, in turn, is prevalent in Western Europe. In certain countries, agricultural activity may enjoy partial or full tax exemption by virtue of agricultural development strategies.

In general, we notice a cautious approach to taxation of agricultural activity. Indeed, it manifests itself in the fact that any changes in the tax burden placed on this economic sector are intentionally lengthened: not only because of the specific nature of agricultural activity itself but also – and above all – for political reasons. We should also bear in mind that solutions applied to taxpayers occupied with agricultural activity should not lead to discriminatory policies against those who pursue non-agricultural economic activity. Another issue is the proper formulation of tax regulations for agricultural activity, so that they constitute a permanent element of an internally coherent tax system.

The issue of taxing agricultural activity in Poland has a particular social, economic, and even political importance. This is mostly for historical reasons. In recent years, agriculture has gone through too radical changes. Initially, these changes were part of the transition from a planned economy to a market economy. In the second stage, there began the process of integration of Polish agriculture into the common European policy. Thus, even a general overview of the problem allows us to assert that it comprises a wide range of different aspects which concurrently affect its complex matter. Undoubtedly, taxation of agricultural activity is one of the most controversial issues within tax law. Creating a sound tax system, which takes into consideration both the fiscal interest and the specific nature of agricultural production, is not an easy task. In this area, legal, economic, social, and political issues are strongly intertwined. All these factors contribute to the long-lasting, complicated character of the discussion on this subject. Many different, often mutually exclusive, conceptions emerge. The high political risk of such a reform is also of crucial importance.

Chapter One: The Concept of Agricultural Activity in Tax Law

I. Principles of agricultural taxation: an overview

The design of each state’s tax system hinges on its sovereignty, from which its tax jurisdiction derives. Thus, undoubtedly, the shape of tax regulations is influenced by the state’s internal conditions, such as its budgetary needs, economic and social factors, but also its history. We cannot ignore the impact of economic globalization and the resulting international relations on the tax system, particularly as reflected in the process of tax harmonization under European Union law. These aspects are also evident in the design of the agricultural taxation system. Indeed, we can claim that each state’s tax policy is bound to its own agricultural policy. This applies to the Polish tax policy (both now and in the past), which translates into a particular system of taxation of agriculture (agricultural activity). Namely, the taxation of agriculture and agricultural activity is not based a monotax system but rather constitutes a specific combination of certain taxes applicable in Poland, in whose structure one may distinguish agriculture-related elements from the so-called taxation standard. This distinction assumes a variety of forms. On the one hand, there is a separate agricultural tax with an unclear typology, while on the other hand, there is a distinction of special agricultural production branches, which fall under an income tax, from non-agricultural economic activities. The peculiar nature of the taxation of agricultural activity manifests itself also in the separation of agricultural taxation principles from the general tax system through an array of tax benefits designed exclusively for agricultural activity. In this context, the literature poses the question of whether the Polish system of taxation of agricultural activity is based on a uniform and coherent tax model, or rather is a set of taxation principles that do not conform to any known model.¹ Below, we shall present a general “roadmap” of Polish tax regulations which include an element related to agricultural activity or, more broadly, agriculture.

Within the doctrine of tax law, the discrimination between direct and indirect taxes is evident and unquestionable, as is the case with state and local ←11 | 12→government taxes. But one may find it more challenging to perform an unambiguous classification by nature of the tax if the criterion for this division is object-oriented and therefore entails a determination of the tax base. The doctrine of Polish tax law is not clear in this respect.² Therefore, we present a description of agricultural activity taxes without referring to the conventional approach to tax typology. Instead, we refer to object-oriented criteria and the comprehensiveness of legal coverage of a given form of agricultural activity.

The most significant agricultural activity tax currently in force in Poland is the agricultural tax.³ It supplies the budgets of communes (gminas), but is not clear in terms of typology. Some describe the agricultural tax as a property tax, revenue tax, or revenue-property tax. However, it also has the features of a revenue-income tax, since, based on external factors, it taxes income from agricultural activity.⁴ This tax defines the following concepts: agricultural activity and agricultural holding, land defined as agricultural land, and the categories of taxable persons, although they are not called “farmers” in the Law. A specific element of its structure is the tax base and tax rates, which bring it close to revenue tax. Namely, the tax base is a conversion hectare, unique to this type of tax, that accounts for the type, class, and location of agricultural land, with separate conversion rates for land below ponds. The tax rate varies, as it depends on the purchase price of a quintal of rye, that is, the average price charged in the previous tax year. There is a number of subjective and objective exemptions within the agricultural tax. The considerable range of these exemptions shows a significant privilege of the agricultural sector. They concern not only situations where land cannot be freely owned – for instance, land situated on a border road strip or excluded for water bodies – but also account for instances where land is used for agricultural activities and does not generate income (land under drainage or classified as underperforming). Some of these exemptions are clearly stimulative, aiming to expand or adapt land used for agricultural activities. Additional preferential elements of this tax include tax reliefs for natural disasters, agricultural holdings located on mountains or foothills, or investments. Another principle that we can ←12 | 13→consider preferential, especially for natural persons, is the tax authority’s determination of the tax amount. In conclusion, the amount of the agricultural tax largely depends on economic and natural conditions of exercising an agricultural activity, regardless of land type, use efficiency, or other important infrastructural factors.⁵

Under the provisions of the Polish agricultural tax, agricultural activity is excluded from state income tax: personal income tax⁶ and corporate income tax.⁷ Although agricultural activity is not subject to income taxes in Poland, the so-called special branches of agricultural production are. They are defined in both these taxes and taxed similarly to income from non-agricultural economic activity. The tax base is income, understood, in principle, as the positive difference between income and tax-deductible costs. At the same time, instead of actual income, natural persons can have their tax base determined with the legally defined standards for estimating annual income, which can constitute a tax preference. Such a possibility is not available to corporate income taxpayers, who are obliged to determine their actual income. In personal income tax, the taxpayers can benefit from preferential elements, such as tax reliefs, joint taxation of spouses, subjective exemptions, or preferential ways of determining advance tax payments. Similarly, in corporate income tax, in a manner that does not deviate from the standards, taxpayers who run special agricultural production branches can benefit from the capital group tax structure, tax reliefs, or tax exemptions, some of which are clearly agricultural in character.⁸