TSCO Tesco Plc

   By Martin M. Sobczyk 
 

WARSAW--The Polish government is reworking draft legislation imposing a tax on retailers after domestic companies voiced opposition to the plan while the European Commission in Brussels also raised objections.

Finance Minister Pawel Szalamacha said on Wednesday the government was working to offer more favorable terms to stores operated under a nationwide brand, but otherwise independent from their franchisers.

Their tax rate should be different from chains where merchandise is supplied mostly by franchisers who get a profit margin on retail sales, Mr. Szalamacha said.

The government has said it's trying to level the playing field for domestic retailers who have been competing with large, often foreign-owned chains such as Tesco PLC of the U.K. and Carrefour SA of France. Under a proposal published in late January, a progressive tax regime was planned for retailers.

Retailers with monthly sales below 1.5 million zlotys ($381,100) won't pay the new tax, but those with monthly sales of up to PLN300 million will pay 0.7% of revenue while retailers generating monthly sales above that figure will pay 1.3%, according to the draft legislation. The ministry also said sales made on weekends and holidays will be taxed at up to 1.9%.

The finance ministry expects to raise about PLN2 billion in 2016 on the tax that will help finance new welfare benefits.

Carrefour and Tesco are expected to be hit hard by the new tax because the revenue they generate would put them in the top tax bracket, said Moody's Investors Service.

The new Polish levy would eat up the two companies' entire operating profit, the ratings agency said. Jeronimo Martins would also potentially face a large tax bill estimated at some 110 million euro ($123.7 million), about a quarter of its 2014 gross profit, Moody's said.

Over the medium term, the tax will be passed on to consumers through price increases, Moody's said. It's an outcome the government has worked to prevent.

Mr. Szalamacha said the European Commission has criticized the tax plan.

"A few days ago we received a letter from the European Commission in which the Commission in the simplest of terms attacks the concept of progressive rates," he said. "We don't agree with this."

The Commission earlier launched a probe to see whether Poland's governing Law and Justice party, which came to power in parliamentary elections in October, is in breach of European law by making changes to the composition and rules of the nation's top court to blunt its ability to block legislation. The government has insisted much of criticism is instigated by its domestic political rivals.

Write to Martin M. Sobczyk at martin.sobczyk@wsj.com

(END) Dow Jones Newswires

February 10, 2016 10:18 ET (15:18 GMT)

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