Reuters logo
Fitch: Tax Change Less Severe for Polish LRGs; Impact Will Vary
December 9, 2016 / 9:57 AM / a year ago

Fitch: Tax Change Less Severe for Polish LRGs; Impact Will Vary

(The following statement was released by the rating agency) WARSAW/LONDON, December 09 (Fitch) The increase in Poland's personal income tax (PIT) threshold will have substantially less impact in aggregate on Polish local and regional government (LRG) revenues than previously forecast, Fitch Ratings says. Nevertheless, the impact may still be noticeable for LRGs that have been less successful in spending and cost control in recent years. At the end of November, Poland's parliament passed a law to increase the PIT threshold to PLN6,600 from PLN3,000 from January - the first such increase since 2009. This meets a pre-election commitment by the ruling Law and Justice (PiS) party, and an end-November deadline set by the Constitutional Tribunal when it ruled last year that the PIT threshold should be no lower than the minimum subsistence level. Under the new law, the PIT threshold will be set for individuals with reference to their annual earnings, rather than applying to everyone who pays income tax. Those earning up to PLN6,600 a year will be eligible for the maximum threshold, while for those with higher annual earnings, the threshold will gradually drop, reaching zero for taxpayers who earn more than PLN127,000 per year. The Polish Ministry of Finance (MoF) estimates that PIT-generated revenues under this system will fall by around PLN1bn, compared with an earlier estimate of PLN16bn based on the higher threshold applying to all taxpayers. Around half of PIT revenue is distributed to Poland's LRGs, with the bulk going to cities and municipalities (regions rely more on corporate income tax revenues). An aggregate reduction of PLN500m in current revenues would amount to 0.3% of LRGs' operating revenue budgeted for 2016, compared with 5% using the earlier MoF estimate. The direct impact on Polish cities' and municipalities' aggregate budgetary performance in 2017 from lower PIT revenue streams has therefore been substantially reduced. However, the reduction will still be relevant to our credit assessment. The impact on operating performance will vary, and will depend on the level of PIT contributions to current revenues, but also on the number of taxpayers with lower incomes. It will also depend on particular LRGs' policy responses, which may be constrained as budgetary flexibility has dropped as it becomes harder to cut rigid expenditure in areas such as education. As yet, the central government has not announced any system to compensate affected LRGs for lost revenue, and it is unclear if such a system is planned. Falling current revenues may also have a longer-term secondary effect of constraining borrowing capacity, by pushing some LRGs closer to their individual debt limits. These limits state that the ratio of debt service costs to total revenue in an LRG's budget plan should not exceed the ratio of the current balance, plus revenue from asset sales, to total revenue, averaged over the previous three years. Any full effect would therefore take at least three years to emerge, but could have implications for financing flexibility, and investment, over time. LRGs in Poland are currently rolling out investments that they intend to co-finance with grants available under the 2014-2020 EU budget. We think that this process will accelerate in 2017 to make up for low capex in 2016. A majority of LRGs will need to incur new debt in order to tap these grants, most of which are received after the LRGs have initially financed capex themselves. Any additional constraints on borrowing capacity may in some cases reduce or delay investment and the absorption of EU grants. Contact: Maurycy Michalski Director +48 22 330 67 01 Fitch Polska S.A. 16 Krolewska Street Warsaw 00-103 Mark Brown Senior Analyst Fitch Wire +44 20 3530 1588 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com; Malgorzata Socharska, Warsaw, Tel: +48 22 338 62 81, Email: malgorzata.socharska@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Related Research 2017 Outlook: Local and Regional Governments here Interpreting the Financial Ratios in Local and Regional Government Rating Reports here Polish LRGs Debt Dashboard November 2016 here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below