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POLAND: Mineral Extraction Tax

PM Mateusz Morawiecki and Finance Minister Teresa Czerwińska announced an amendment bill to the tax on mineral extraction (commonly referred to as the copper tax), which was accepted by the Council of Ministers. Companies will be able to reduce the amount of tax paid on the extraction of some minerals in exchange for donations to local governments where the mines are located. Donations made cannot exceed 5% of the tax due and should be paid on a monthly basis. While some commentators argued that the move might be motivated by this week’s local elections, the proposal is too technical to become a major point of PiS’ campaign.

The tax on mineral extraction, which was introduced in 2012 by the PO-PSL government, generates significant income to the state budget. It applies to copper, silver, crude oil and natural gas. However, in Poland the tax mainly applies to a single company, the state-owned giant KGHM. Company executives argued that the tax imposes an excessive financial burden, especially when there is a downturn on the copper market. Initially, during the parliamentary election campaign and during the term of PM Beata Szydło, PiS planned to suspend the tax for a ten-year period.  According to PM Morawiecki, this option is still under consideration, however, time is needed for further analysis.

The government believes the donation relief system will drive the economic development of local areas in which mining activities are carried out. The state-owned KGHM, which applauded the government’s proposal, has already paid over 1.2 billion PLN as a result of this tax this year. This, if the proposal is implemented, would have provided PLN 60 million this year for local governments, especially in Lower Silesia. The donation system is supposed to be compromise, which will allow KGHM to funnel some of its profits to key regions – potentially boosting investments. This also ties in with the government’s wider strategy of appeasing mining communities, especially since key officials have recently tuned down their pro-coal narrative.