Polish Retailers Drop as Court Ruling Renews Sales Tax Fears

(Bloomberg) -- Shares in Poland’s biggest retailers slid as the government in Warsaw won a challenge against the European Commission over a retail levy tax that was halted as illegal state aid.

• A ruling by the European Union’s General Court may start a debate on whether to impose the tax that was intended to boost budget revenue by as much as 2 billion zloty ($523 million) and support smaller local stores in their fierce competition against the biggest, mostly foreign-owned retail chains, by setting progressive rate.
• Polish ruling party has not made a decision yet whether to reintroduce levy as it needs to analyze legal and market situation.

Key Insights

• “The decision increases chances to introduce a new tax,” which would hurt Jeronimo Martins SGPS SA, Dino Polska SA, LPP SA and CCC SA the most, Piotr Bogusz, an analyst at MBank SA, said in an email.
• The Court said that progressive taxation doesn’t “imply the existence of a selective advantage.”
  • Such a verdict may potentially encourage politicians to impose even higher rate on the biggest chains to improve the situation of the smallest local retailers: Wood brokerage.
  • New tax may possibly spur faster expansion in e-commerce as such activities were excluded from levy in original 2016 retail tax bill: CCC’s CEO Marcin Czyczerski.
• Poland had sought to tax retailers that have monthly turnover of more than 17 million zloty by a 0.8% rate on sales, extended to a 1.4% rate when turnover exceeds 170 million zloty.
• “It’s negative for retailers, but a new tax may be imposed later than at the start of 2020” as the decision may still be appealed, Ipopema Securities SA analyst Krzysztof Kawa wrote in a note.
• Poland’s Finance Ministry had no immediate comment on whether the government plans to introduce the tax.

Market Reaction

• Shares in Dino, a fast-growing food supermarket chain, drop as much as 9.4%, most ever, while Eurocash SA retreated as much as 6.9%
• Jeronimo Martins, which owns the country’s biggest retail chain Biedronka, fell as much as 5.9% in Lisbon, posting the steepest decline since Dec. 2018.
• LPP fashion retailer retreated as much as 4.3% while CCC dropped as much as 8.5%.

To contact the reporter on this story: Konrad Krasuski in Warsaw at kkrasuski@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Piotr Bujnicki, Jon Menon

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