322
Pawel Swianiewicz
Recommended changes should be in the following two directions: They should simplify the system. This recommendation could lead to the elimination of tax on dog owners and perhaps some other minor local fees and taxes. They should strengthen the local tax base (perhaps at the expense of tax sharing), first at the county and regional levels but then at the municipal level. It is necessary to stress that the overall level of tax burden for citizens and enterprises should not increase as a result of the reform. The reform of local taxes can never be discussed in the abstract, in the context of the broader change in public finance in general. If the overall burden of local taxes increases, it must be compensated by the reduction of some central taxes. Note that such a scenario would not lead to an additional burden at the central level, because strengthening the local tax base would enable reductions in state transfers, which should focus on a principle of equalization, rather than a general vertical equalization. Finally, it should be stressed that such a positive evolution is not very likely. Most discussions and lobbying of local government organizations are focused on securing additional funds for local governments through the taxsharing system rather than on extending local taxation powers.
Shared Taxes In the official budget classification and reporting, revenues from shares in central taxes are treated as part of own-source revenues. However, because local governments have no direct discretion to influence these revenues, this classification cannot be accepted; therefore, shares are discussed separately here.8 In fact, tax sharing has some negative consequences, typically for ownsource revenues (because it contributes to increased disparities between poor and rich jurisdictions). Moreover, it lacks positive features, such as stimulating local government accountability. Nonetheless, extending the tax-sharing system has been the main direction of reforms discussed and implemented in local government finance. Two main income taxes—personal income tax and corporate income tax—are collected by the treasury office. Fixed shares are then transferred to the local government units. The Law on Local Government Revenues, enacted in November 2003, considerably increased the proportion transferred to municipalities, counties, and regions. Its effects are illustrated in table 9.6.
