317
Local Government Organization and Finance: Poland
In practice, most local governments levy taxes close to the maximum rates, but in some cases rate reductions are quite significant. For most local taxes, actual revenues are more than 10 percent lower than they would be if no rate reductions or tax releases were granted by the local government. What is the significance of local tax policies? Property tax is the only local tax that might be important for businesses’ location decisions.4 This tax also has significant political importance, because the tax rate on housing properties is often a hot issue in local communities. Hence, property tax policy is analyzed more carefully in the following section. In some rural local governments, debate over the rate of tax on agriculture is also of some political importance. In every year since the beginning of the 1990s, actual revenues from property taxes have been more than 10 percent lower than would have been possible if no rate reductions or tax exemptions were granted by local councils and executive mayors. The results of reductions in tax rates are usually much more important (more than two-thirds of the total amount) than tax exemptions and individually granted tax releases. There are important differences between tax policies implemented in small rural communities and those implemented in big cities. In general, tax rates are usually much lower in small municipalities. In big cities, rates are usually very close to the maximum, and the main instrument of property tax policy is related to tax exemptions and individual tax releases. These differences are illustrated in table 9.5. Until the end of 2003, small jurisdictions (fewer than 10,000 citizens) had an additional incentive to levy taxes at low rates: the reduction of revenues related to lowering rates was to a large extent compensated for in the equalization grant. T A B L E 9 . 5 Results of Reductions, Exemptions, and Releases from Property Tax, by Size of Local Government, 2001 (percentage of maximum available revenues) Number of inhabitants Result
Overall reductions Results of rate reductions Results of tax exemptions and tax releases
Fewer than 5,000– 5,000 10,000
10,000– 20,000– More than 20,000 50,000 50,000
Cities with county status
20 15
21 16
19 13
14 9
8 4
8 3
5
5
6
5
4
5
Source: Author’s calculations based on financial reports of local governments.
