Cadastral tax – what is it?

The cadastral tax, also known as ad valorem tax, is one of the tax ideas that stir up very strong emotions. What is it really, and should we fear its introduction?

What is the cadastral tax?

Under the current legal system, property owners are required to pay property tax to the municipality. It is a local tax, the rate of which is set by each municipality. The amount we pay to the local authority depends on the size of the property. The value of the flat or house has no bearing on it. The situation is completely different with the cadastral tax. Here the amount of the tax depends on the value of the property. Such a system already exists in many countries of the European Union. As a rule, the annual charge ranges from 1 to 3 per cent of the property's value.

To introduce this type of taxation, it is necessary to create a cadastre, that is, a register of properties with their descriptions and estimated values. A register prepared in this way is the basis for calculating the tax base. At present there are no such registers in Poland, and creating them would require enormous financial resources from local authorities, which are the beneficiaries of property charges.

Will introducing the cadastral tax mean higher charges?

The cadastral tax is a decidedly less favourable solution for taxpayers. If we assume that in Poland this kind of levy were set at 1.5% of the property's value, charges could rise as much as 30-fold. Today, for an average-sized flat we pay the municipality no more than 200-300 PLN a year. After the change, these amounts would rise to several thousand PLN.

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Should we fear the introduction of the cadastral tax?

It is local authorities that are in favour of changing the way property is taxed. Such a system would allow them to increase their budget revenue significantly and improve their financial situation. However, given its very large social impact, its introduction seems unlikely. This way of calculating the tax would mainly hit less affluent people living in city centres.

Even though this way of calculating property charges exists in many countries of the European Union, Poland is under no obligation to introduce it into its tax system. In official statements, government representatives deny any intention of introducing the cadastral tax. The political cost to whoever introduced a cadastre would be enormous. Judging by the positions of most political parties, we can rest assured that the ad valorem tax will not be introduced in Poland in the coming years.