US embassy cable - 05WARSAW2467

UNCLAS WARSAW 002467 
 
SIPDIS 
 
 
SENSITIVE 
 
STATE FOR EUR/NCE TARA ERATH AND MICHAEL SESSUMS 
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS AND MWILSON 
TREASURY FOR OASIA MATTHEW GAERTNER 
DOE FOR IA-42 BOB PRICE AND ED ROSSI 
 
E.O. 12958: N/A 
TAGS: ENRG, EFIN, EPET, ECON, PREL, PL 
SUBJECT: Polish Finance Ministry Hopes Higher Taxes Excise 
Gray Market for Fuel and Cigarettes 
 
Ref: Warsaw 2252 
 
(U) This cable is sensitive, but unclassified, and NOT for 
Internet distribution. 
 
1. (U) On June 1, the Polish Ministry of Finance announced 
that it would increase the excise tax on imported heating 
oil and liquefied gas used for cars (autogas) by mid-June. 
Under the proposal, the excise tax on heating oil would be 
raised from 233 Zloty ($68.70) per 1000 liters to 1028 Zloty 
($303).  Finance said the move is necessary to close a 
loophole under which criminals currently import diesel or 
gasoline from Russia and Belarus at the lower rate, and sell 
it to gas stations, splitting the difference.  At the end of 
May, the Finance Ministry submitted proposed amendments to 
parliament to tighten enforcement measures against excise 
tax evasion for cigarettes, including introducing measures 
requiring the destruction of seized cigarettes.  Although 
the main purpose of the changes on oil excise tax are not 
fiscal, Polish papers estimate the changes would raise 1.4 
billion Zloty ($413 million) in revenue in 2005. 
 
2. (SBU) Oil retailers in Poland, including several foreign 
companies, have long complained that `fuel mafias' are 
taking a significant bite out of their business.  The Polish 
Organization of Oil Industry and Trade (Pophin, made up of 
the largest oil retailers active in Poland) estimates that 
15-20% of the fuel market is made up of these illegal 
imports, while the gray share of the autogas market is even 
larger, ranging between 35-50%.  Shell's country manager 
recently observed that the revenue for an individual gas 
station owner would be considerable, "enough to retire to 
the Bahamas."  Legitimate companies are indifferent to the 
tax increase, believing it will have some effect if 
implemented in closing the loophole.  The real problem, in 
the companies' view, is the insufficient number of Polish 
customs inspectors on the eastern border, and the relatively 
light judicial penalties for those few individuals who have 
been caught.  Shell's manager contrasted the lax customs 
oversight on the eastern border with overly tight 
regulations on oil product imports from Germany, where every 
truck from its refinery in Germany crossing into Poland is 
emptied and inspected. 
 
3. (U) Opposition parties in parliament immediately 
protested that the proposed increase in excise on heating 
oil would affect disproportionately poor people and those 
living in rural areas (the tax change would more than double 
the total price for heating oil).  Opposition parties 
suggested they would call for a vote of no confidence in 
Finance Minister Gronicki if his ministry implemented this 
tax increase.  Members of the ruling SLD party indicated 
they might join opposition parties in voting against 
Gronicki.  Recognizing the strength of political opposition, 
Prime Minister Belka announced on June 3 that Finance would 
hold off until August 1 on introducing any changes until the 
government can come up with a program to protect "ordinary" 
citizens from the effects of the increase cost of heating 
oil.  Belka underscored the importance of closing the tax 
loopholes, however, that allow fuel mafias to operate. 
 
4. (SBU) Comment: For the last three years, the Polish 
Government has estimated that these fuel mafias were the 
greatest source of money laundering and tax evasion in 
Poland.  The GOP has been concerned that a number of the 
individuals involved have links to organized crime.  As the 
GOP has stepped up enforcement of fuel regulations, Finance 
has seen these criminal organizations migrate to smuggling 
cigarettes (ref a).    Since assuming office, closing these 
loopholes has been one of Finance Minister Gronicki's top 
priorities, both to recapture lost excise taxes and limit 
the scope for criminal activity.  Election-year politics may 
water down Finance's latest efforts, especially because of 
the politically ham-handed roll-out of the policy. 
 
Ashe 
 
 
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 2005WARSAW02467 - Classification: UNCLASSIFIED