## EXECUTIVE SUMMARY ## Source details **Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2018/cr18357.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18357.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18357.pdf.json) --- ### Background and methodology - Applies the Revenue Administration Gap Analysis Program (RA-GAP) value-added tax (VAT) gap estimation methodology to Poland for the period 2010–16. - RA-GAP employs a top-down approach to estimate the potential VAT base using national accounts data on value-added by sector. - Two main components of the RA-GAP methodology: - Estimate the potential VAT collections for a given period. - Determine the accrued VAT collections for that period. - VAT gap = potential VAT collections − actual accrued VAT collections. - RA-GAP decomposes the VAT gap into: - The compliance gap: difference between potential VAT under current policy and actual accrued VAT collections. - The policy gap: difference between the overall VAT gap and the compliance gap. ### Main findings — aggregate VAT performance (2008–17) - Nominal VAT revenues in Poland increased over 2008–17, but real revenues declined from 2008 to 2015 and recovered in 2017. - VAT measured as percent of GDP: - 7.9 percent in 2008 - 7.0 percent in 2015 - 7.8 percent in 2017 - Domestic vs import VAT (2010–16): - Domestic collections increased from around 80 percent of total VAT collections in 2010 to nearly 95 percent in 2016. - Domestic VAT as percent of GDP: increased from 6.0 percent in 2010 to 6.8 percent in 2016. - Import VAT as percent of GDP: decreased from 1.6 percent in 2010 to 0.4 percent in 2016. - Decline in import VAT mainly attributed to modification of Article 33a of the VAT Act in 2015 allowing taxpayers, under certain conditions, to pay import VAT with regular VAT returns rather than at customs. ### C-efficiency - Definition: ratio of actual VAT collections to theoretical revenues under a perfectly enforced tax at the standard rate on all final consumption without exemptions; accounts for standard rate and final consumption aggregates. - Poland c-efficiency: - 45 percent in 2008 - Declined to 38 percent in 2013 - Slight increase with 2017 efficiency expected to be around 42 percent (based on provisional final consumption estimates) - Average for Poland over 2008–16: 41 percent - European (regional) comparison: - Regional average across 2008–16: around 55 percent - Poland’s average c-efficiency 41 percent is below most European countries and below the regional average at 56 percent (IMF’s EUR administrative region). - Interpretation: c-efficiency useful for comparative analysis but limited diagnostically; changes can stem from compliance, policy, base composition, or timing effects. ### VAT gap estimates (2010–16) - Overall VAT gap (including policy gap): - Just over 10 percent in 2010 and 2016 - Peaked at 11 percent in 2013 - Policy gap: - Reasonably stable across 2010–16 at between 8.1 to 8.4 percent of GDP - Accounted for about 80 percent of the total VAT gap over the period - Compliance gap (2010–16): - Around 20 percent of potential VAT over the period - Rose from 21 percent of potential VAT in 2010 to a peak of 27 percent in 2013, then fell back to around 21 percent in 2016 - In GDP terms: equivalent to 2.0 percent of GDP (2010), rising to 2.6 percent (peak), and falling back to 1.8 percent (2016) ### Compliance gap — sectoral patterns and drivers - Major sectors driving the compliance gap: - Trade and transport sectors - Professional and other personal services sectors - Other observations: - Notable gap in the utilities sector likely due to data issues (utilities are generally low risk but difficult to measure accurately in national accounts). - Potential gaps observed in hotel and restaurant sectors, and possibly emerging in information and communication sector. - Changes in the overall compliance gap in recent years were primarily driven by changes in the trade and transport sectors. - Decrease in the compliance gap in trade and transport is consistent with compliance initiatives targeted at these sectors. ### Comparison with other estimates - VAT compliance gap estimates by EC TAXUD and Poland’s Ministry of Finance (MoF) are broadly consistent with RA-GAP results: - All three series show compliance gaps rising from around 21 percent of potential VAT in 2010 to around 27 percent in 2012–13 and falling back to around 21 percent in 2016. - Divergence occurs in 2014 where RA-GAP shows a dip not present in the other series; overall trend from 2013 onward remains consistent. - Consistency expected since all methods rely on balanced national accounts data to estimate potential VAT. ### Recommendations for further work and policy use - Continue to estimate the VAT compliance gap as part of fiscal monitoring of revenue outturns against forecast projections, including periodic updates of the RA-GAP model. - Use VAT gap estimates to evaluate progress in improving tax morale in Poland and closing the VAT gap. - Broaden the scope of tax gap analysis to include other taxes. - Use tax gap analysis as a foundation for strategic compliance risk management. - Investigate the causes of the apparent gap in the utilities sector to determine if compliance risks are present. - Consider measures to tackle compliance risks in professional and personal services. - Consider closer cooperation and information sharing with the Central Statistical Office. - Use the national database of VAT returns and payments data created for RA-GAP to develop a more systematic national approach to risk analysis. - Consider developing the national database of individual VAT transactions created by the new Standard Audit File (SAF) initiative as a tool for compliance risk analysis. ### A. The compliance gap: assessment gap versus collection gap - Definitions: - Collection gap = difference between actual VAT collections and the total amount of VAT declared or assessed as due from taxpayers. - Assessment gap = difference between the amount of VAT declared or assessed and potential VAT. - Collection gap is the "known" portion; assessment gap is the "unknown" portion. - Key findings: - The great majority of the overall compliance gap is attributable to the assessment gap. - Assessment gap fell from 1.94 percent of GDP in 2010 to 1.85 percent in 2016. - Collections gap found slightly negative in most years (likely due to some assessments data being missing in the micro-data used in the RA-GAP study); this does not materially affect overall compliance gap because collections gap is much smaller than assessment gap. - Measurement note: - Measures do not take into account uncollectible arrears (e.g., arrears written off for bankrupt businesses). This causes the collections gap to tend to overstate the amount of potential gain from closing the identified portion of the tax gap. ### B. The policy gap - Definition: - Policy gap = difference between the potential VAT if all final consumption were taxed at the current standard rate and the potential VAT given the current policy framework. - Affected by changes in policy structure and composition of final consumption. - Key findings: - Policy gap remained broadly level over 2010–2016, between 8.1 and 8.4 percent of GDP. - Increase in the standard rate in 2011 of 1 percentage point would tend to increase the policy gap, but reduced rates were increased at the same time by 2 percentage points, offsetting this effect and leaving the policy gap relatively level between 2010 and 2016. ### C. The expenditure gap and the non-taxable gap - Definitions: - Expenditure gap = component of policy gap due to tax expenditure decisions (difference between a baseline with minimal standard exemptions and current policy framework). - Non-taxable gap = portion of policy gap resulting from typical VAT exemptions necessary for pragmatic design (difference between taxing all final consumption at the standard rate and the baseline with minimal exemptions). - These separate the policy gap into revenue mobilization potential (expenditure gap) and little revenue mobilization potential (non-taxable gap). - Key findings: - Expenditure gap increased slightly from 2.7 to 2.9 percent of GDP between 2010 and 2016. - Non-taxable gap decreased slightly from 5.4 to 5.3 percent of GDP between 2010 and 2016. - During this period the expenditure gap was just over a third of the policy gap. - Sectoral attribution: - Significant part of the policy gap attributable to the agricultural sector: - Reduced rates applicable in the agricultural sector, which forms a significant part of Poland’s GDP and food items. - EU’s flat-rate farmers’ scheme widely applicable to micro-businesses in Polish farming (a tax expenditure). - Significant production for own use in agriculture is not market output and thus included in the non-taxable gap. - Registration threshold in this sector exerts a negative element on the non-taxable gap because of reduced rates and subsidies. ### D. The overall VAT gap (policy gap + compliance gap) - Key statistics: - Total VAT gap increased from 10.1 to 11 percent of GDP between 2010–13 before declining to 10 percent in 2016. - Total VAT gap rose from 10.1 percent of GDP in 2010 to 11 percent in 2013, mainly due to an increase in the compliance gap of 0.6 percentage points. - Subsequent decline in the compliance gap meant that, over the full period, the total VAT gap was largely unchanged, at 10 percent of GDP. - Components and mobilization potential: - Largest components of the overall VAT gap in Poland are the non-taxable gap and the expenditure gap. - Components with revenue mobilization potential: collections gap, assessment gap, and expenditure gap. - Components without revenue mobilization potential: non-taxable gap. - Largest component of the total VAT gap is the non-taxable gap (no potential for revenue mobilization). The expenditure gap and the relatively high assessment gap present significant potential for revenue mobilization. ### E. C-efficiency and relationship to VAT gap components - Relationship: - Observed c-efficiency should equal (1 - VAT gap) or (1 - policy gap) x (1 - compliance gap). - Using RA-GAP results, (1 - VAT gap) is very close to observed c-efficiency during 2010 to 2016; residual differences arise from minor measurement and definitional differences. - Drivers of year-on-year changes: - Most year-on-year changes in observed c-efficiency are attributable to changes in the compliance gap. - While compliance gap changes account for most individual year-on-year changes, the largest contributor to the decline in c-efficiency over 2010 to 2016 is the expenditure gap. - C-efficiency in Poland is generally very stable; individual observed changes are likely within error margins. ### F. Measurement of actual VAT (RA-GAP accrual measurement) - RA-GAP approach: - Uses an accrual measurement for actual VAT, associating tax with the relevant tax period via micro-level taxpayer data rather than with the payment period. - Better matches economic activity declared by taxpayers and corresponding payments in statistical data. - Accruals versus cash: - In the long run, cash values for revenue should average out with accrued values (ignoring penalties and interest). - In the short run, cash values tend to be more volatile than accruals. - Differences driven by cash management issues: timing of debt collections and refund payments; excess credit carry-forward mechanisms; and inflation effects on timing between tax periods and payment deadlines. - Cash measures tend to be pro-cyclical: cash collections improve and excess credit carry forwards accumulate during growth and worsen during decline. - NB: - Terms cash and accrual here refer only to measurement of VAT paid by taxpayers, not to 'cash accounting' schemes for taxpayers’ reporting. ### G. Further analysis: potential and actual VAT, sectoral patterns, and compliance gap by sector - Potential and actual VAT trends: - Final consumption declined as a percent of GDP from 91 percent of GDP in 2010 to 83 percent in 2016. - Potential VAT declined from 9.6 percent of GDP to 8.9 percent of GDP between 2010 and 2016 (declined less than final consumption, partly due to rates increase in 2011). - Sectoral observations and limitations: - RA-GAP provides a sectoral breakdown using national accounts supply-use tables and taxpayer registration data; broad indicator and should be cross-checked with administration business intelligence. - Two caveats: - Actual VAT generally reported under taxpayers’ principal economic activity, whereas potential VAT derived from national accounts that separate mixed activities across sectors. - National accounts separate margins (e.g., transport margins) that may be included in retailers’ VAT declarations; RA-GAP adjusts for this. - Sectoral findings: - Largest component of both potential and actual VAT is the trade and transportation sector. - Compliance gap was largest in trade and transportation historically, but gap in this sector declined over 2013 to 2016 coincident with major compliance campaigns. - Consistent gaps observed in professional and other services sectors. - A gap observed in the energy and utilities sector (less usual, often low risk). - Small negative gaps observed in mining and manufacturing are within margins of error and can be disregarded for practical purposes. ### H. Comparison with other estimates (CASE and MoF / EC TAXUD) - Cross-method comparison: - VAT compliance gaps estimated by the MoF and by CASE for EC TAXUD are generally consistent with RA-GAP estimates. - Levels very similar for most years. - Divergence in 2014: RA-GAP estimates the gap at 19 percent of potential VAT, while CASE and MoF estimates are 24-25 percent. Divergence arises because RA-GAP’s potential VAT that year was slightly lower and its actual VAT collections figure slightly higher. - Trend since 2013 consistent between RA-GAP and MoF estimates, showing a declining trend to 2017. ### Convergence of potential VAT estimates (2010–17) - Finding: RA-GAP, CASE for EC TAXUD, and the MoF approaches produce very similar estimates of potential VAT for 2010–17. - Appendix Table 18: RA-GAP potential VAT and Case and MoF estimates (Billion PLN): - 2010: RA-GAP 139; Case 138; MoF 135 - 2011: RA-GAP 148; Case 155; MoF 153 - 2012: RA-GAP 158; Case 159; MoF 156 - 2013: RA-GAP 160; Case 158; MoF 157 - 2014: RA-GAP 156; Case 163; MoF 162 - 2015: RA-GAP 162; Case 167; MoF 164 - 2016: RA-GAP 165; Case (blank); MoF 167 ### Institutional reforms and administrative consolidation - Authorities merged tax administration, customs and fiscal control operations into single operational offices at regional and local levels; at the MoF central level, related departments were concentrated under the Head of KAS and his deputies. - Intended effect: Modernize tax administration and address a VAT compliance gap significantly higher than the EU average. ### Sealing package (introduced December 2016) — components - Components included: - Extended reverse charge arrangements - Introduction of additional requirements to be fulfilled in order to get faster VAT refunds - Restrictions on quarterly returns - E-filing of VAT returns - Monthly e-filing of summary intra-community sales - Changes in joint and several liability for suppliers and purchasers for the VAT due on their transactions and on guarantee deposit rules - Extension of liability to new taxpayers’ agents - Powers to block VAT registrations - Introduction of non-compliance fines (VAT sanctions) - Increased sanctions for VAT fraud and other changes to the tax criminal code - Ending quarterly tax returns, with the exception of small taxpayers - New registered taxpayers have no right to use quarterly tax returns for a period of 12 months from the month in which registration took place ### Authorities’ evaluation of sealing package yield - Reported yields and assessments: - Yield from the sealing package in 2017: PLN 389 million - Forecast yield for 2018: PLN 3 billion - Authorities’ preliminary assessment: the 2017 VAT compliance gap fell by several percentage points from 2016 (hedged language preserved) ### SAF (Uniform Control Files) e-filing of transaction logs - Measure: Mandatory e-filing of sales and purchase transactions logs (SAFs) for all VAT taxpayers. - Operational benefits: - Enables automatic cross-check of input tax credits against suppliers’ output tax declarations. - Centralized national database supports advanced risk analytics when merged with taxpayer register and payments/returns micro-data. - Authorities’ reported impacts for 2017: - Increased declared sales by PLN 20 billion in 2017. - Detected discrepancies totaling PLN 10 billion on 314,000 returns in 2017. - Compliance with SAF requirements reported as 94 percent for Q1 2018. - Convergence Programme documentation estimate: revenue yield from SAF for 2017 is PLN 6.5 billion. ### Planned and enacted 2018 measures (timing and projected yields) - Planned measures for 2018 and July 1, 2018 entry into force items: - Split payments of VAT to dedicated VAT accounts (banks agreed to provide separate VAT accounts free of charge; voluntary for purchasers; authorities considering whether to make split payments obligatory subject to EC consultations) - Real-time e‑filing from electronic cash registers - Increased information requirements for registration and de-registration - Sanctions for non-registered sales - Restriction of online sales by unregistered sellers - Additional measures to secure fuel supply chains - Projected yields (authorities’ projections): - Combined SAF, split payments and STIR measures: about PLN 7.7 billion in 2018 and PLN 4.3 billion in 2019 - Total projected from measures including split payments: PLN 3.3 billion in 2019, rising to PLN 9 billion in 2023 ### STIR law and bank reporting for suspicious money flows (2018) - Measure: Increased reporting requirements for banks’ clearing houses to report suspicious money flows to prevent use of the financial sector for tax fraud. - Operational detail: - Clearing houses and KAS analyze money transfer data using algorithms from banking practice and anti-money laundering experience. - Results reported to the tax administration daily. - Administration may block high-risk bank accounts (not private natural persons’ accounts) for up to 72 hours, with option to extend to three months. - Aim: identify and disrupt purchaser taxpayers complicit in missing trader frauds and organized criminal gangs. ### Authorities’ overall assessment of 2017–19 revenue impacts - Authorities’ reported/projected figures: - Sealing package yield 2017: PLN 389 million - Sealing package forecast 2018: PLN 3 billion - SAF estimated revenue yield 2017: PLN 6.5 billion - Projected combined SAF, split payments and STIR yield: PLN 7.7 billion in 2018; PLN 4.3 billion in 2019 - Measures including split payments projected to yield PLN 3.3 billion in 2019; PLN 9 billion in 2023 ### Key historical VAT statistics (selected figures) - VAT revenues (VAT Revenue, PLN millions; VAT to GDP, percentage): - 2008: 101,876; 7.9 - 2009: 99,562; 7.3 - 2010: 109,718; 7.6 - 2011: 122,647; 7.8 - 2012: 116,264; 7.1 - 2013: 116,607; 7.0 - 2014: 122,671; 7.1 - 2015: 125,836; 7.0 - 2016: 134,554; 7.2 - 2017: 154,671; 7.8 - Compliance gap and related indicators (Compliance Gap percent of potential; percent of GDP): - 2010: 21; 2.0 - 2011: 18; 1.7 - 2012: 24; 2.4 - 2013: 27; 2.6 - 2014: 19; 1.7 - 2015: 24; 2.2 - 2016: 21; 1.8 - Total VAT Gap, Policy Gap, Compliance Gap (In percent of GDP): - 2010: Total VAT Gap 10.08; Policy Gap 8.10; Compliance Gap 1.98 - 2011: Total VAT Gap 10.00; Policy Gap 8.29; Compliance Gap 1.71 - 2012: Total VAT Gap 10.60; Policy Gap 8.22; Compliance Gap 2.38 - 2013: Total VAT Gap 10.98; Policy Gap 8.39; Compliance Gap 2.59 - 2014: Total VAT Gap 10.09; Policy Gap 8.39; Compliance Gap 1.69 - 2015: Total VAT Gap 10.24; Policy Gap 8.07; Compliance Gap 2.18 - 2016: Total VAT Gap 10.03; Policy Gap 8.20; Compliance Gap 1.83 - C-efficiency ratios (Poland C-Efficiency Ratio): - 2008: 0.45 - 2009: 0.41 - 2010: 0.43 - 2011: 0.43 - 2012: 0.39 - 2013: 0.39 - 2014: 0.40 - 2015: 0.40 - 2016: 0.41 - 2017: 0.43 (est) - Potential vs. accrued VAT (In percent of GDP): - 2010: Potential VAT 9.6; Accrued net VAT 7.7; Final consumption 90.7 - 2011: 9.5; 7.7; 90.8 - 2012: 9.7; 7.3; 89.6 - 2013: 9.7; 7.1; 83.6 - 2014: 9.1; 7.4; 82.5 - 2015: 9.0; 6.8; 83.0 - 2016: 8.9; 7.0; 82.5 *Source: IMF staff calculations and RA-GAP analysis as presented in the EXECUTIVE SUMMARY (cr18357).* ### EXECUTIVE SUMMARY __________________________________________________________________________ 6 ### EXECUTIVE SUMMARY ### Background and methodology - The report applies the Revenue Administration Gap Analysis Program (RA-GAP) value-added tax (VAT) gap estimation methodology to Poland for the period 2010–16. - RA-GAP employs a top-down approach to estimate the potential VAT base using national accounts data on value-added by sector. - Two main components of the RA-GAP methodology: - Estimate the potential VAT collections for a given period. - Determine the accrued VAT collections for that period. - The VAT gap = potential VAT collections − actual accrued VAT collections. - RA-GAP decomposes the VAT gap into: - The compliance gap: difference between potential VAT under current policy and actual accrued VAT collections. - The policy gap: difference between the overall VAT gap and the compliance gap. ### Main findings — aggregate VAT performance (2008–17) - Nominal VAT revenues in Poland increased over 2008–17, but real revenues declined from 2008 to 2015 and recovered in 2017. - VAT measured as percent of GDP: - 7.9 percent in 2008 - 7.0 percent in 2015 - 7.8 percent in 2017 - Domestic vs import VAT (2010–16): - Domestic collections increased from around 80 percent of total VAT collections in 2010 to nearly 95 percent in 2016. - Domestic VAT as percent of GDP: increased from 6.0 percent in 2010 to 6.8 percent in 2016. - Import VAT as percent of GDP: decreased from 1.6 percent in 2010 to 0.4 percent in 2016. - The decline in import VAT is mainly attributed to the modification of Article 33a of the VAT Act in 2015 allowing taxpayers, under certain conditions, to pay import VAT with regular VAT returns rather than at customs. ### C-efficiency - C-efficiency ratio definition: ratio of actual VAT collections to theoretical revenues under a perfectly enforced tax at the standard rate on all final consumption without exemptions; accounts for standard rate and final consumption aggregates. - Poland c-efficiency: - 45 percent in 2008 - Declined to 38 percent in 2013 - Slight increase with 2017 efficiency expected to be around 42 percent (based on provisional final consumption estimates) - Average for Poland over 2008–16: 41 percent - European (regional) comparison: - Regional average across 2008–16: around 55 percent - Poland’s average c-efficiency 41 percent is below most European countries and below the regional average at 56 percent (regional averages referenced as IMF’s EUR administrative region). - Interpretation: c-efficiency useful for comparative analysis but limited diagnostically; changes can stem from compliance, policy, base composition, or timing effects — hence need for comprehensive tax gap analysis. ### VAT gap estimates (2010–16) - Overall VAT gap (including policy gap): - Just over 10 percent in 2010 and 2016 - Peaked at 11 percent in 2013 - Policy gap: - Reasonably stable across 2010–16 at between 8.1 to 8.4 percent of GDP - Accounted for about 80 percent of the total VAT gap over the period - Compliance gap (2010–16): - Around 20 percent of potential VAT over the period - Rose from 21 percent of potential VAT in 2010 to a peak of 27 percent in 2013, then fell back to around 21 percent in 2016 - In GDP terms: equivalent to 2.0 percent of GDP (2010), rising to 2.6 percent (peak), and falling back to 1.8 percent (2016) ### Compliance gap — sectoral patterns and drivers - Major sectors driving the compliance gap: - Trade and transport sectors - Professional and other personal services sectors - Other observations: - A notable gap in the utilities sector is likely due to data issues (utilities are generally low risk but difficult to measure accurately in national accounts). - Potential gaps observed in hotel and restaurant sectors, and possibly emerging in information and communication sector. - Changes in the overall compliance gap in recent years were primarily driven by changes in the trade and transport sectors. - The decrease in the compliance gap in trade and transport is consistent with compliance initiatives targeted at these sectors. ### Comparison with other estimates - VAT compliance gap estimates by EC TAXUD and Poland’s Ministry of Finance (MoF) are broadly consistent with RA-GAP results: - All three series show compliance gaps rising from around 21 percent of potential VAT in 2010 to around 27 percent in 2012–13 and falling back to around 21 percent in 2016. - Divergence occurs in 2014 where RA-GAP shows a dip not present in the other series; however, the overall trend from 2013 onward remains consistent. - Consistency is expected since all methods rely on balanced national accounts data to estimate potential VAT. ### Recommendations for further work and policy use - Continue to estimate the VAT compliance gap as part of fiscal monitoring of revenue outturns against forecast projections, including periodic updates of the RA-GAP model. - Use VAT gap estimates to evaluate progress in improving tax morale in Poland and closing the VAT gap. - Broaden the scope of tax gap analysis to include other taxes. - Use tax gap analysis as a foundation for strategic compliance risk management. - Investigate the causes of the apparent gap in the utilities sector to determine if compliance risks are present. - Consider measures to tackle compliance risks in professional and personal services. - Consider closer cooperation and information sharing with the Central Statistical Office. - Use the national database of VAT returns and payments data created for RA-GAP to develop a more systematic national approach to risk analysis. - Consider developing the national database of individual VAT transactions created by the new Standard Audit File (SAF) initiative as a tool for compliance risk analysis, alongside the database of taxpayer returns and payments. *Source: IMF staff calculations and RA-GAP analysis as presented in the EXECUTIVE SUMMARY (cr18357).* ### 13. The compliance gap can be broken down into an assessment gap and a collection ### 13. The compliance gap can be broken down into an assessment gap and a collection gap ### A. The compliance gap: assessment gap versus collection gap - Definitions: - The collection gap is the difference between actual VAT collections and the total amount of VAT declared or assessed as due from taxpayers. - The assessment gap is the difference between the amount of VAT declared or assessed and potential VAT. - The collection gap is the "known" portion of the compliance gap; the assessment gap is the "unknown" portion. - Key findings: - The great majority of the overall compliance gap is attributable to the assessment gap. - The assessment gap fell from 1.94 percent of GDP in 2010 to 1.85 percent in 2016. - As measured, the collections gap was found to be slightly negative in most years (likely due to some assessments data being missing in the micro-data used in the RA-GAP study). This does not materially affect the overall size of the estimated compliance gap because the collections gap is invariably much smaller than the assessment gap. - Measurement note: - These basic measures do not take into account uncollectible arrears (for example, arrears written off for bankrupt businesses). This causes the collections gap to tend to overstate the amount of potential gain from closing the identified portion of the tax gap. ### B. The policy gap - Definition: - The policy gap is the difference between the potential VAT if all final consumption were taxed at the current standard rate and the potential VAT given the current policy framework. - The policy gap is affected by changes in policy structure and changes in the composition of final consumption (e.g., shifts toward exempt or reduced-rate items). - Key findings: - The policy gap remained broadly level over the period 2010 to 2016, between 8.1 and 8.4 percent of GDP. - The increase in the standard rate in 2011 of 1 percentage point would tend to increase the policy gap, but reduced rates were increased at the same time by 2 percentage points, offsetting this effect and leaving the policy gap relatively level between 2010 and 2016. ### C. The expenditure gap and the non-taxable gap - Definitions: - The expenditure gap is the component of the policy gap due to tax expenditure decisions (the difference between a baseline with minimal standard exemptions and the current policy framework). - The non-taxable gap is the portion of the policy gap resulting from typical VAT exemptions necessary for pragmatic design (the difference between taxing all final consumption at the standard rate and the baseline with minimal exemptions). - These two components separate the policy gap into the portion with revenue mobilization potential (expenditure gap) and the portion with little revenue mobilization potential (non-taxable gap). - Key findings: - The expenditure gap increased slightly from 2.7 to 2.9 percent of GDP between 2010 and 2016. - The non-taxable gap decreased slightly from 5.4 to 5.3 percent of GDP between 2010 and 2016. - During this period the expenditure gap was just over a third of the policy gap. - Sectoral attribution: - A significant part of the policy gap in Poland is attributable to the agricultural sector: - Reduced rates are applicable in the agricultural sector, which forms a significant part of Poland’s GDP and food items. - The EU’s flat-rate farmers’ scheme is widely applicable to micro-businesses in Polish farming (a tax expenditure). - Significant production for own use in agriculture is not market output and thus included in the non-taxable gap. - The registration threshold in this sector exerts a negative element on the non-taxable gap because of reduced rates and subsidies. ### D. The overall VAT gap (policy gap + compliance gap) - Definitions and measurement: - The overall VAT gap can be measured directly (difference between potential VAT if all final consumption were taxed at the current standard rate and actual VAT revenue) or derived by combining the policy and compliance gaps. - Key statistics: - The total VAT gap increased from 10.1 to 11 percent of GDP between 2010–13 before declining to 10 percent in 2016. - The total VAT gap rose from 10.1 percent of GDP in 2010 to 11 percent in 2013, mainly due to an increase in the compliance gap of 0.6 percentage points. - The subsequent decline in the compliance gap meant that, over the full period, the total VAT gap was largely unchanged, at 10 percent of GDP. - Components and mobilization potential: - The largest components of the overall VAT gap in Poland are the non-taxable gap and the expenditure gap. - Components that represent revenue mobilization potential: collections gap, assessment gap, and expenditure gap. - Components without revenue mobilization potential: non-taxable gap. - The largest component of the total VAT gap is the non-taxable gap (no potential for revenue mobilization). The expenditure gap and the relatively high assessment gap present significant potential for revenue mobilization. ### E. C-efficiency and relationship to VAT gap components - Relationship: - Observed c-efficiency should equal (1 - VAT gap) or (1 - policy gap) x (1 - compliance gap). - Using RA-GAP results, (1 - VAT gap) is very close to observed c-efficiency during 2010 to 2016; residual differences arise from minor measurement and definitional differences. - Drivers of year-on-year changes: - Most year-on-year changes in observed c-efficiency are attributable to changes in the compliance gap. - While compliance gap changes account for most individual year-on-year changes, the largest contributor to the decline in c-efficiency over 2010 to 2016 is the expenditure gap. - C-efficiency in Poland is generally very stable; individual observed changes are likely within error margins. ### F. Measurement of actual VAT (Box 1: RA-GAP accrual measurement) - RA-GAP approach: - Uses an accrual measurement for actual VAT, associating tax with the relevant tax period via micro-level taxpayer data rather than with the payment period. - This better matches economic activity declared by taxpayers and corresponding payments in statistical data. - Accruals versus cash: - In the long run, cash values for revenue should average out with accrued values (ignoring penalties and interest). - In the short run, cash values tend to be more volatile than accruals. - Differences are driven by cash management issues: timing of debt collections and refund payments; excess credit carry-forward mechanisms; and inflation effects on timing between tax periods and payment deadlines. - Cash measures tend to be pro-cyclical: cash collections improve and excess credit carry forwards accumulate during growth and worsen during decline. - NB: - The terms cash and accrual here refer only to measurement of VAT paid by taxpayers, not to 'cash accounting' schemes for taxpayers’ reporting. ### G. Further analysis: potential and actual VAT, sectoral patterns, and compliance gap by sector - Potential and actual VAT trends: - Final consumption declined as a percent of GDP from 91 percent of GDP in 2010 to 83 percent in 2016. - Potential VAT declined from 9.6 percent of GDP to 8.9 percent of GDP between 2010 and 2016 (declined less than final consumption, partly due to rates increase in 2011). - Sectoral observations and limitations: - RA-GAP provides a sectoral breakdown of potential and actual VAT using national accounts supply-use tables and taxpayer registration data; this is a broad indicator and should be cross-checked with administration business intelligence. - Two main caveats: - Actual VAT is generally reported under taxpayers’ principal economic activity, whereas potential VAT is derived from national accounts that separate mixed activities across sectors. - National accounts separate margins (e.g., transport margins) that may be included in retailers’ VAT declarations; RA-GAP adjusts for this. - Sectoral findings: - The largest component of both potential and actual VAT is the trade and transportation sector. - The compliance gap was largest in the trade and transportation sector historically, but the gap in this sector declined over 2013 to 2016 coincident with major compliance campaigns targeting this sector. - Consistent gaps are also observed in the professional and other services sectors. - A gap is observed in the energy and utilities sector (less usual, often low risk). - Small negative gaps observed in mining and manufacturing are within margins of error and can be disregarded for practical purposes (though included in aggregate estimates). ### H. Comparison with other estimates (CASE and MoF / EC TAXUD) - Cross-method comparison: - VAT compliance gaps estimated by the MoF and by CASE for EC TAXUD are generally consistent with RA-GAP estimates. - Levels are very similar for most years. - Divergence in 2014: RA-GAP estimates the gap at 19 percent of potential VAT, while CASE and MoF estimates are 24-25 percent. The divergence arises because RA-GAP’s potential VAT that year was slightly lower and its actual VAT collections figure slightly higher—differences that reinforce one another in the gap estimate. - The trend since 2013 is consistent between RA-GAP and MoF estimates, showing a declining trend to 2017. *Source: staff calculations.* ### 33. Levels and the trend in potential VAT estimated by the three different approaches ### 33. Levels and the trend in potential VAT estimated by the three different approaches ### Convergence of potential VAT estimates - Finding: The RA-GAP, CASE for EC TAXUD, and the MoF approaches produce very similar estimates of potential VAT for 2010–17. - Evidence (figures/tables referenced): - Figure 24 comparative series (2010–17) show similar trajectories for RA-GAP potential VAT, Case potential VAT, and MoF potential VAT. - Appendix Table 18: RA-GAP potential VAT and Case and MoF estimates (Billion PLN): - 2010: RA-GAP 139; Case 138; MoF 135 - 2011: RA-GAP 148; Case 155; MoF 153 - 2012: RA-GAP 158; Case 159; MoF 156 - 2013: RA-GAP 160; Case 158; MoF 157 - 2014: RA-GAP 156; Case 163; MoF 162 - 2015: RA-GAP 162; Case 167; MoF 164 - 2016: RA-GAP 165; Case (blank); MoF 167 ### Institutional reforms and administrative consolidation - Finding: Authorities merged tax administration, customs and fiscal control operations into single operational offices at regional and local levels; at the MoF central level, related departments were concentrated under the Head of KAS and his deputies. - Intended effect: Modernize tax administration and address a VAT compliance gap significantly higher than the EU average. ### Sealing package (introduced December 2016) — components - Finding: A set of mutually reinforcing compliance measures aimed at improving tax morale and reducing the compliance gap. - Components included: - Extended reverse charge arrangements - Introduction of additional requirements to be fulfilled in order to get faster VAT refunds - Restrictions on quarterly returns - E-filing of VAT returns - Monthly e-filing of summary intra-community sales - Changes in joint and several liability for suppliers and purchasers for the VAT due on their transactions and on guarantee deposit rules - Extension of liability to new taxpayers’ agents - Powers to block VAT registrations - Introduction of non-compliance fines (VAT sanctions) - Increased sanctions for VAT fraud and other changes to the tax criminal code - Ending quarterly tax returns, with the exception of small taxpayers - New registered taxpayers have no right to use quarterly tax returns for a period of 12 months from the month in which registration took place ### Authorities’ evaluation of sealing package yield - Reported yields and assessments: - Authorities’ evaluation: yield from the sealing package in 2017 was Polish złoty (PLN) 389 million. - Forecast yield for 2018: PLN 3 billion. - Authorities’ preliminary assessment: the 2017 VAT compliance gap fell by several percentage points from 2016 (hedged language preserved). ### SAF (Uniform Control Files) e-filing of transaction logs - Measure: Mandatory e-filing of sales and purchase transactions logs (SAFs) for all VAT taxpayers. - Operational benefits: - Enables automatic cross-check of input tax credits against suppliers’ output tax declarations. - Centralized national database supports advanced risk analytics (benchmarking, risk profiling, machine learning) when merged with taxpayer register and payments/returns micro-data. - Authorities’ reported impacts for 2017: - Increased declared sales by PLN 20 billion in 2017. - Detected discrepancies totaling PLN 10 billion on 314,000 returns in 2017. - Compliance with SAF requirements reported as 94 percent for Q1 2018. - Convergence Programme documentation estimate: revenue yield from SAF for 2017 is PLN 6.5 billion. ### Planned and enacted 2018 measures (including timing and projected yields) - Planned measures for 2018 and July 1, 2018 entry into force items: - Split payments of VAT to dedicated VAT accounts (banks agreed to provide separate VAT accounts free of charge; voluntary for purchasers; authorities considering whether to make split payments obligatory subject to EC consultations) - Real-time e‑filing from electronic cash registers - Increased information requirements for registration and de-registration - Sanctions for non-registered sales - Restriction of online sales by unregistered sellers - Additional measures to secure fuel supply chains - Projected yields (authorities’ projections): - Combined SAF, split payments and STIR measures: about PLN 7.7 billion in 2018 and PLN 4.3 billion in 2019 - Total projected from measures including split payments: PLN 3.3 billion in 2019, rising to PLN 9 billion in 2023 ### STIR law and bank reporting for suspicious money flows (2018) - Measure: Increased reporting requirements for banks’ clearing houses to report suspicious money flows to prevent use of the financial sector for tax fraud (notably VAT fraud by organized criminal gangs). - Operational detail: - Clearing houses and KAS analyze money transfer data using algorithms from banking practice and anti-money laundering experience. - Results reported to the tax administration daily. - Administration may block high-risk bank accounts (not private natural persons’ accounts) for up to 72 hours, with option to extend to three months. - Aim: identify and disrupt purchaser taxpayers complicit in missing trader frauds and organized criminal gangs. ### Authorities’ overall assessment of 2017–19 revenue impacts - Authorities’ reported/ projected figures: - Sealing package yield 2017: PLN 389 million - Sealing package forecast 2018: PLN 3 billion - SAF estimated revenue yield 2017: PLN 6.5 billion - Projected combined SAF, split payments and STIR yield: PLN 7.7 billion in 2018; PLN 4.3 billion in 2019 - Measures including split payments projected to yield PLN 3.3 billion in 2019; PLN 9 billion in 2023 ### Key historical VAT statistics (selected figures from Appendix tables) - VAT revenues (Appendix Table 1: VAT Revenue, PLN millions; VAT to GDP, percentage): - 2008: 101,876; 7.9 - 2009: 99,562; 7.3 - 2010: 109,718; 7.6 - 2011: 122,647; 7.8 - 2012: 116,264; 7.1 - 2013: 116,607; 7.0 - 2014: 122,671; 7.1 - 2015: 125,836; 7.0 - 2016: 134,554; 7.2 - 2017: 154,671; 7.8 - Compliance gap and related indicators: - Appendix Table 5: Compliance Gap (percent of potential; percent of GDP): - 2010: 21; 2.0 - 2011: 18; 1.7 - 2012: 24; 2.4 - 2013: 27; 2.6 - 2014: 19; 1.7 - 2015: 24; 2.2 - 2016: 21; 1.8 - Appendix Table 7: Total VAT Gap, Policy Gap, Compliance Gap (In percent of GDP): - 2010: Total VAT Gap 10.08; Policy Gap 8.10; Compliance Gap 1.98 - 2011: Total VAT Gap 10.00; Policy Gap 8.29; Compliance Gap 1.71 - 2012: Total VAT Gap 10.60; Policy Gap 8.22; Compliance Gap 2.38 - 2013: Total VAT Gap 10.98; Policy Gap 8.39; Compliance Gap 2.59 - 2014: Total VAT Gap 10.09; Policy Gap 8.39; Compliance Gap 1.69 - 2015: Total VAT Gap 10.24; Policy Gap 8.07; Compliance Gap 2.18 - 2016: Total VAT Gap 10.03; Policy Gap 8.20; Compliance Gap 1.83 - C-efficiency ratios (Appendix Table 3): - Poland C-Efficiency Ratio: - 2008: 0.45 - 2009: 0.41 - 2010: 0.43 - 2011: 0.43 - 2012: 0.39 - 2013: 0.39 - 2014: 0.40 - 2015: 0.40 - 2016: 0.41 - 2017: 0.43 (est) - Potential vs. accrued VAT (Appendix Table 14: In percent of GDP): - Potential VAT / Accrued net VAT / Final consumption: - 2010: 9.6; 7.7; 90.7 - 2011: 9.5; 7.7; 90.8 - 2012: 9.7; 7.3; 89.6 - 2013: 9.7; 7.1; 83.6 - 2014: 9.1; 7.4; 82.5 - 2015: 9.0; 6.8; 83.0 - 2016: 8.9; 7.0; 82.5 *Source: staff calculations, EC TAXUD and country authorities.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18357.pdf_