One Small Hitch

It is remarkable that politicians the world over find it easier to interfere in the affairs of others rather than putting their own house in order.  Much better to be able to announce some grand gesture of than to work quietly behind the scenes on some small administrative change that actually improves life.  Or, as a friend wrote today, the sound bite is always preferred to the sound policy.  And so with the announcement this week that Poland is to increase state aid for SMEs.

The Polish government wishes to extend the “de minimis” program which provides co-guarantees for loans for small and medium sized business hoping thereby to boost to boost Poland’s economy.  Commercial banks may grant loans of up to PLN 3.5 million per company with the state guaranteeing up to 60 per cent of the loan value.  The Finance Minister Jaeck Rostowski announced that the government is seeking the approval of the EU Commission (wither sovereignty?) to broaden the programme and to raise the upper limit for loans to companies.  The Polish government thinks that this kind of support is crucial since SMEs create about 70 per cent of the jobs in the country.  And talking of jobs, a point that is never made during the government boasting that Poland has avoided a recession, anything less than 3 per cent GDP growth has no impact on Poland’s high rate of unemployment.

Be that as it may, it is probably unfair to categorise this scheme, which was launched in March as simply a grand gesture since so far companies have borrowed some PLN 7 billion of which PLN 4 billion is guaranteed by the state thus taking away some of the risk from the commercial banks.  Of course, what is never clear with these sorts of programmes is whether companies fail to receive loans simply because of an unwillingness on the part of banks to lend or because of a failure to meet normal lending criteria. It is back to the initial  question: should politicians be second guessing business where they more often than not makes the situation worse or should they be looking to those areas where they are able to make a positive change?

Decent chap as no doubt is he is, Minister Rostowski might look nearer to home at the Polish tax authorities if he wishes to help SMEs.  A couple of examples.  One of the bugbears of the Polish system is the need to have formal VAT invoices for every item of expenditure, however small, if the expenditure is to be recognized as a cost in the VAT system.  Quite sensibly, for once, the EU decreed (Directive 2006/112/EC) that simplified invoices (for example till receipts) may be issued for supplies not exceeding a gross amount of PLN 450 or €100 and that provided the amount of VAT at the appropriates rates may be clearly determined, no customer information is required.  Of course, when the new invoicing rules came into effect in Poland from 1st January of this year, a new requirement for the customer’s VAT number to be include on the simplified invoice was invented.  Since the cost of equipping the whole of Poland with suitable new cash registers or re-programming those capable of reprogramming is probably prohibitive, a sensible reform aiming at simplification has been sabotaged.   Similarly in the case of VAT exempt supplies it is sufficient under EU law for the word “exempt’ to appear on the invoice whereas, in contradiction to the Directive, Polish law requires a specific reference to the reason for the exemption based on Polish law, EU law or some other legal basis.

There are plenty more examples – and in the other areas too – but that is more than enough on invoicing for one day.  The point is that there appears to be an institutional inability to understand that simplifying rules for tax payers will reduce costs and bring benefits to the economy benefits which will far outweigh encouraging banks to make loans which, for whatever reason, they would rather not.  This is not so much institutional inertia as an attitude which assumes that as most taxpayers will have neither the inclination nor the resources to fight, for the tax office compliance with law takes second place to extracting money from SMEs.  Obtaining a bank loan may be one small (or even large) hitch for SMEs but for them the tax office still presents a Gordian Knot of a problem.   So request to minister: please leaves lending to the banks and rein in your own bureaucrats.

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