Polish Finance Ministry Hopes Higher Taxes Excise

UNCLAS WARSAW 002467

SIPDIS


SENSITIVE

STATE FOR EUR/NCE TARA ERATH AND MICHAEL SESSUMS
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS AND MWILSON
TREASURY FOR OASIA MATTHEW GAERTNER
DOE FOR IA-42 BOB PRICE AND ED ROSSI

E.O. 12958: N/A
TAGS: ENRG EFIN EPET ECON PREL PL
SUBJECT: Polish Finance Ministry Hopes Higher Taxes Excise
Gray Market for Fuel and Cigarettes

Ref: Warsaw 2252

(U) This cable is sensitive, but unclassified, and NOT for
Internet distribution.


1. (U) On June 1, the Polish Ministry of Finance announced
that it would increase the excise tax on imported heating
oil and liquefied gas used for cars (autogas) by mid-June.
Under the proposal, the excise tax on heating oil would be
raised from 233 Zloty ($68.70) per 1000 liters to 1028 Zloty
($303). Finance said the move is necessary to close a
loophole under which criminals currently import diesel or
gasoline from Russia and Belarus at the lower rate, and sell
it to gas stations, splitting the difference. At the end of
May, the Finance Ministry submitted proposed amendments to
parliament to tighten enforcement measures against excise
tax evasion for cigarettes, including introducing measures
requiring the destruction of seized cigarettes. Although
the main purpose of the changes on oil excise tax are not
fiscal, Polish papers estimate the changes would raise 1.4
billion Zloty ($413 million) in revenue in 2005.


2. (SBU) Oil retailers in Poland, including several foreign
companies, have long complained that `fuel mafias' are
taking a significant bite out of their business. The Polish
Organization of Oil Industry and Trade (Pophin, made up of
the largest oil retailers active in Poland) estimates that
15-20% of the fuel market is made up of these illegal
imports, while the gray share of the autogas market is even
larger, ranging between 35-50%. Shell's country manager
recently observed that the revenue for an individual gas
station owner would be considerable, "enough to retire to
the Bahamas." Legitimate companies are indifferent to the
tax increase, believing it will have some effect if
implemented in closing the loophole. The real problem, in
the companies' view, is the insufficient number of Polish
customs inspectors on the eastern border, and the relatively
light judicial penalties for those few individuals who have
been caught. Shell's manager contrasted the lax customs
oversight on the eastern border with overly tight
regulations on oil product imports from Germany, where every
truck from its refinery in Germany crossing into Poland is
emptied and inspected.


3. (U) Opposition parties in parliament immediately
protested that the proposed increase in excise on heating
oil would affect disproportionately poor people and those
living in rural areas (the tax change would more than double
the total price for heating oil). Opposition parties
suggested they would call for a vote of no confidence in
Finance Minister Gronicki if his ministry implemented this
tax increase. Members of the ruling SLD party indicated
they might join opposition parties in voting against
Gronicki. Recognizing the strength of political opposition,
Prime Minister Belka announced on June 3 that Finance would
hold off until August 1 on introducing any changes until the
government can come up with a program to protect "ordinary"
citizens from the effects of the increase cost of heating
oil. Belka underscored the importance of closing the tax
loopholes, however, that allow fuel mafias to operate.


4. (SBU) Comment: For the last three years, the Polish
Government has estimated that these fuel mafias were the
greatest source of money laundering and tax evasion in
Poland. The GOP has been concerned that a number of the
individuals involved have links to organized crime. As the
GOP has stepped up enforcement of fuel regulations, Finance
has seen these criminal organizations migrate to smuggling
cigarettes (ref a). Since assuming office, closing these
loopholes has been one of Finance Minister Gronicki's top
priorities, both to recapture lost excise taxes and limit
the scope for criminal activity. Election-year politics may
water down Finance's latest efforts, especially because of
the politically ham-handed roll-out of the policy.

Ashe


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2005WARSAW02467 - Classification: UNCLASSIFIED