The President has signed the windfall tax act - what does it mean in practice?
The President has signed the government act introducing a special tax on excess profits (the so-called windfall tax) imposed on fuel producers and importers. As a result, the government's "Lower Fuel Prices" programme is due to return in a few days, which will reduce petrol and diesel prices by around PLN 1 per litre. For an average driver who fills up twice a month with 50 litres each time, this means savings of about PLN 100 a month.
From a legal perspective, however, the President's decision raises serious doubts. For weeks the head of state maintained that a tax cannot operate retroactively - yet the act covers profits earned since March of this year. This is a fundamental principle of tax law: lex retro non agit. The President's change of position opens a dangerous precedent, which may have far-reaching consequences for the entire tax system in Poland.
The windfall tax mechanism is based on taxing revenue from sales of liquid fuels in excess of 120% of the reference level from the previous year. The tax rate is 60% of the excess profits so determined, and the government estimates revenue at around PLN 4 billion. This amount is meant to fund reductions in excise duty and VAT on fuel over the coming months.
Seven non-obvious legal and economic consequences of the act
The direct benefit of lower prices at the pump is only the tip of the iceberg. Below we set out seven consequences that neither the government nor the President mentions publicly, but which have real legal and financial significance for citizens and businesses.
- A price cut does not mean cheap fuel - petrol prices of PLN 7-7.2 and diesel prices of PLN 8-8.2 per litre are still historically high. The funds raised will cover a maximum of three months of subsidies, with no guarantee that the market situation will improve.
- The government does not control global oil prices - a single social media post or a geopolitical conflict can wipe out the entire "saving". Fuel prices depend on international markets, not on political decisions in Warsaw.
- Risk of costs being passed on to consumers - Orlen, which supplies 80% of wholesale fuel, may build the windfall tax into wholesale fuel prices, raising its refining margin by the equivalent of the tax. Wholesale prices are not subject to government control.
- Risk of market shortages - artificially lowered prices remove the "instinct to save" and may make imports of scarce fuels (particularly diesel) unprofitable.
- Opportunity costs for the budget - the reductions so far have cost PLN 5.5 billion, while at the same time preventive health screening programmes were cut for lack of just under PLN 1 billion.
- The real threat is energy costs - gas prices on the TTF exchange have almost doubled in three months, and the price of electricity has risen by more than 25%. The coming winter will place a much heavier burden on household budgets.
- Undermining investor confidence - Orlen is a listed company in which half of the shares are held by private shareholders, including participants in PPK, IKE, IKZE and the future OKI programme. The windfall tax effectively "robs" them of part of their profits.
Retroactivity of the tax and the threat to the principle of legal certainty
From the point of view of tax law, the most serious problem is the retroactive nature of the windfall tax. The principle of non-retroactivity of tax law, enshrined in Article 2 of the Constitution of the Republic of Poland as an element of the principle of a democratic state governed by the rule of law, is the foundation of citizens' trust in the legal system. Taxing profits retroactively - from March of this year - undermines this principle in an unprecedented way.
This precedent has far-reaching consequences. If the government can today impose an additional tax on profits already earned by fuel companies, tomorrow it can apply the same mechanism to any sector - banks, developers or technology companies. This is not a purely hypothetical scenario: banks already pay an increased income tax, which was introduced "for one year" but may be extended indefinitely.
Foreign experience confirms these concerns. In the United Kingdom, the windfall tax imposed on energy companies has already been extended. We are seeing a dangerous trend: taxes introduced "temporarily" become a permanent feature of the fiscal system. Every company seeks to pass the cost of a higher tax burden on to end customers - which means that ultimately consumers will pay the windfall tax.
Consequences for the capital market and savings programmes
It is worth noting one more legal aspect that escapes public debate. Orlen and other fuel companies are entities listed on the Warsaw Stock Exchange. Their shareholders are millions of Poles - directly or through investment funds. The windfall tax reduces the value of these investments, hitting people saving for retirement through Employee Capital Plans (PPK) or Individual Retirement Accounts (IKE).
In a few months, the same government plans to launch the OKI (National Investment Account) programme, encouraging citizens to invest in Polish listed companies - including the very same ones it is now burdening with an extraordinary tax. It is hard to find a better example of inconsistent economic policy, which undermines individual investors' confidence in the capital market.
What next? How to protect your interests in an uncertain legal environment
The situation around the windfall tax shows how dynamically the regulatory environment in Poland is changing. For businesses in the fuel sector, this means an urgent need to review their tax strategy and prepare for potential tax audits. For investors, it means a need to diversify their portfolios and manage regulatory risk consciously.
Key questions that businesses and investors should ask themselves today include:
- Could my company be subject to a similar tax on extraordinary profits in the future?
- How can I safeguard commercial contracts against further retroactive tax changes?
- Are there grounds to challenge the retroactive provisions before the Constitutional Tribunal?
- How can I minimise tax risk in the context of rising energy costs and the approaching heating season?
Legal uncertainty calls for a proactive approach. Whether you run a business in the fuel or energy sector, or invest on the stock market, it is worth consulting specialists about your situation now.
Do you need a professional legal analysis of the impact of the windfall tax on your business? Contact our firm - we will help you understand the consequences of the new rules and protect your interests in a changing tax environment. Call or write to us today to arrange a consultation.
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