from Property Tax,by Size ofLocal Government,2001

Local Government Organization and Finance: Poland 317

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 oflocal tax policies? Property tax is the only local tax that might be important for businesses’location decisions.4 This taxalso 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 localgovernments,debate over the rate oftax on agriculture is also ofsome political importance.

In every year since the beginning ofthe 1990s,actual revenues from property taxes have been more than 10 percent lower than would have been possible ifno rate reductions or tax exemptions were granted by local councils and executive mayors.The results ofreductions in tax rates are usually much more important (more than two-thirds ofthe 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 ofproperty tax policy is related to tax exemptions and individual tax releases.These differences are illustrated in table 9.5.Until the end of2003,small jurisdictions (fewer than 10,000 citizens) had an additional incentive to levy taxes at low rates:the reduction ofrevenues related to lowering rates was to a large extent compensated for in the equalization grant.

TABLE 9.5 Results ofReductions, Exemptions, and Releases from Property Tax, by Size ofLocal Government, 2001 (percentage ofmaximum available revenues)

Number ofinhabitants

Cities with Fewer than 5,000– 10,000– 20,000– More than county Result 5,000 10,000 20,000 50,000 50,000 status

Overall reductions 20 21 19 14 8 8 Results ofrate reductions 15 16 13 9 4 3 Results oftax exemptions and tax releases 5 5 6 5 4 5

Source: Author’s calculations based on financial reports oflocal governments.