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New VAT rate matrix

2019-01-23

On 9 November 2018, a draft law to amend the Act on the Tax on Goods and Services and the Tax Code was published on the website of the Government Legislation Centre. One of the key aims of the draft is to simplify the VAT rate system by introducing the so-called new VAT rate matrix. The draft adopts as a rule a single tax rate for each division of the CN, i.e. all goods classified in such a division, e.g. meat, dairy products, vegetables and fruits. Currently, bread and bakery products are subject to three tax rates, i.e. 5%, 8% and 23% depending on the expiry date. Following the amendment, the products will be taxed at a single rate. 

Moreover, a general rule has been introduced whereby if it is necessary to change the rate for specific goods, the rate will be reduced. Where a given product was hitherto taxed, e.g. at the rate of 5% and 8%, the new rate should be 5%. The lower VAT rates will apply to inter alia: tropical and citrus fruits, pistachios, bread, cookies, soups, bouillons, homogenised foods, mustard, certain processed spices (e.g. pepper, nutmeg or thyme), baby and children products, personal care products, books, newspapers, dailies and magazines.    

On the other hand, higher rates will only apply to certain (few) products and services, such as: certain unprocessed spices, fruit and vegetable juices other than the so-called 100% juices, lobsters and octopuses as well as other shellfish, molluscs and water invertebrates, ice-cream and specialist periodicals.

The draft at issue also provides for an essentially unchanged 8% VAT rate for: firewood, goods and services used for agricultural production (livestock, seeds, fertilisers and pesticides, agricultural twines) and goods and services related to healthcare (medical products, medicinal products and disinfectants).

The changes will result in a smaller number of positions in the new Appendices 3 and 10 to the VAT Act containing lists of goods and services taxed at the rates of 8% and 5% respectively. The 8% rate is to apply to 71 items (currently 187), whereas the 5% rate – to 23 items (currently 35). The smaller number of items does not mean that fewer products will be covered by the lower rate. The reductions will merely result from a change in the description of an item.

The new VAT rate matrix is to come into force on 1 January 2020; and with respect to books, music scores, maps and magazines – on 1 April 2019.

Undoubtedly, the introduction of the new VAT rate matrix is a desirable move aiming at making the VAT rate system simpler and uniform. It is a change long-awaited by all businesses. As a result of the amendment, business owners will enjoy greater certainty that the rates applied by them are correct. Another desirable change is the proposed introduction of the Binding Rate Information (BRI) as additional protection against unexpected changes in the approach of the tax authorities to the classification of a given product or service.

Paulina Andrzejczyk, Tax Consultant, ATA Tax Sp. z o.o.

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