{"id":2585,"date":"2026-04-19T08:37:57","date_gmt":"2026-04-19T08:37:57","guid":{"rendered":"https:\/\/www.europesays.com\/poland\/2585\/"},"modified":"2026-04-19T08:37:57","modified_gmt":"2026-04-19T08:37:57","slug":"poland-digital-services-tax-dst","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/poland\/2585\/","title":{"rendered":"Poland Digital Services Tax | DST"},"content":{"rendered":"

Poland<\/a>\u2019s Ministry of Digitalization started a public consultation on a new proposal<\/a> for a digital service tax<\/a>A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. (DST). Since 2020, Poland has levied a 1.5 percent digital tax on audiovisual media services and audiovisual commercial communications. Now, a new 3 percent DST proposal plans to tax targeted advertisements, multilateral digital interfaces, and monetization of user data, excluding activities like regulated financial services, direct online sales, and publishing. This would be an important policy shift with potentially harmful consequences for all stakeholders.<\/p>\n

DSTs Tax Revenues Rather Than Profits<\/p>\n

Unlike corporate income taxes, DSTs are levied on revenues rather than profits. Historically, European countries have turned away from these types of taxes because even low tax rates can translate into high effective tax burdens. For example, if a company has \u20ac100 in revenue and \u20ac90 in costs, it will earn \u20ac10 in profit. Under the current law, if a 1.5 percent DST is applied to that revenue, the company would owe \u20ac1.5 in tax (1.5 percent of \u20ac100 in revenue). For this company, a 1.5 percent tax on revenue equals a 15 percent tax on profits (a \u20ac1.5 tax on a \u20ac10 profit).<\/p>\n

However, under this new proposal, if a 3 percent DST is applied to that same company, the company would owe \u20ac3 in tax (3 percent of \u20ac100 in revenue)\u2014a 30 percent tax on profits. The following figure shows how different profit margins for that same company earning \u20ac100 in revenue\u00a0relate to different effective tax rates, under the current (1.5 percent) and proposed (3 percent) DST rates. With a 3 percent DST, if that company only earned a 5 percent profit margin, the effective tax rate would be 60 percent. With a 25 percent profit margin, the effective tax rate would be 12 percent.<\/p>\n

Even before this proposal, the DST led to a disproportionate tax burden being placed on companies with lower profit margins\u2014the less profitable a company was, the higher its effective tax rate became. DST tax bases correspond poorly to profits, cash flow, or ability to pay. However, a 3 percent DST would strongly impact all companies, regardless of profitability.<\/p>\n

\u00a0<\/p>\n

While the new DST proposal states that the tax liability would be reduced by the amount of corporate income tax<\/a>A corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. paid in Poland, the levy is designed to target companies without a physical presence in the country. Many such businesses have low corporate income tax payments in Poland because corporate income taxes traditionally operate on \u201csource-based\u201d rules, where taxes are assessed in the place where production happens.<\/p>\n

Threshold<\/p>\n

The DST targets companies with global revenue<\/a> of \u20ac1 billion, and a Polish revenue threshold above \u20ac6 million (PLN 25 million). This threshold makes the DST discriminatory in terms of company size. The revenue threshold results in the tax only being applied to large multinationals. While this can avoid burdening smaller companies, it also provides a relative advantage for businesses below the threshold and creates an incentive for businesses operating near the threshold to alter their behavior.\u00a0<\/p>\n

This proposed DST, which functions like a tariff<\/a>Tariffs are taxes imposed by one country on goods imported from another country. Tariffs are trade barriers that raise prices, reduce available quantities of goods and services for US businesses and consumers, and create an economic burden on foreign exporters. on certain services, is designed to be discriminatory; it will target industries largely dominated by US companies. The US government has voiced opposition to DSTs over the last decade, with President Trump using Section 301 investigations<\/a> in his first term, and, more recently, the US Congress threatening the Section 899 retaliatory tax. Should the proposed measure become law, the US is expected to respond with retaliatory trade measures. The 301 tariffs would effectively tax Polish exports, while an 899-style retaliation would tax Polish investments in the US, and neither outcome would be beneficial for Poland or for the global economy.<\/p>\n

Economic Incidence<\/p>\n

Proponents of the new DST<\/a> argue that it will support digital sovereignty, provide funds for combating the harmful consequences of using social media, and ensure a level playing field for domestic firms. However, if a small domestic firm is below the threshold, it owes no tax, while a large global company does. That\u2019s not a level playing field\u2014it\u2019s preferential treatment. Additionally, it overlooks the economic reality of tax incidence<\/a>Tax incidence is a measure of who bears the legal or economic burden of a tax. Legal incidence identifies who is responsible for paying a tax while economic incidence identifies who bears the cost of tax\u2014in the form of higher prices for consumers, lower wages for workers, or lower returns for shareholders.. A recent research paper<\/a> by economists Dominika Langenmayr and Rohit Reddy Muddasani shows that the attempt to target big digital platforms misses the mark, as the cost mostly falls on consumers. This outcome is especially likely when the taxed service is genuinely valuable, but a small open economy like Poland lacks domestic substitutes for the provider.<\/p>\n

A Higher and Broader DST Will Not Collect Substantial Revenue<\/p>\n

Part of the justification for introducing the 2020 1.5 percent DST was to compensate the Polish Film Institute for the reduction of revenues caused by the COVID crisis. The levy, initially introduced as part of a pandemic stimulus package, later became permanent. The government expects to raise \u20ac400 million<\/a> (PLN 1.7 billion) with this new tax in 2027, around 0.3 percent of the total tax revenue<\/a>. Experiences from other European countries also show that digital services taxes tend to generate only limited revenues<\/a>. DST revenue in Austria<\/a>, France<\/a>, Italy<\/a>, Spain<\/a>, Turkey<\/a>, and the UK ranged from \u20ac103 million (Austria) to \u20ac1.03 billion (the UK) in the most recent year revenue was reported. Turkey\u2019s DST, with a tax rate of 7.5 percent<\/a>, brings in the most at 0.14 percent of total revenues.<\/p>\n

Even if Poland were able to raise the estimated additional revenue with this new DST, the amount raised would still be less than one percent of the country\u2019s general revenue.<\/p>\n

DSTs Are Not the Answer<\/p>\n

If Poland is worried about raising more money from digital services, then it should continue reforming its value-added tax (VAT) to effectively tax these services at the point of consumption. Additionally, broadening the VAT\u00a0tax base<\/a>The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.\u00a0by eliminating reduced rates and exemptions would bring in additional revenue of up to \u20ac50 billion euros, increasing Poland\u2019s VAT revenue by 93 percent<\/a> while causing fewer distortions in the economy. Finally, the VAT is trade-neutral and does not discriminate between firms.<\/p>\n

Since a new DST could put an additional burden on consumers, trigger trade tensions, and fail to significantly increase Poland\u2019s revenue, it\u2019s time for policymakers to reconsider their approach. Rather than expanding the DST, they should eliminate it altogether. The core purpose of tax policy is to raise revenue efficiently, and there are far more effective tools to achieve that goal.<\/p>\n

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