EUROPE : A Taxing Test for Poles: To Cheat or Not to Cheat

It is tax time in Poland, and the country is abuzz with just one subject: To cheat or not to cheat.

The hubbub goes beyond the normal grousing leading to every April 30, when personal income taxes come due here. An oversight in the new Polish tax code has made it is easier than ever to cheat--and, more importantly, to get away with it.

If everyone were to take advantage of a loophole allowing tax-free “charitable donations” to friends and relatives, it would cost the state treasury nearly $2 billion, according to one unofficial calculation.

That’s enough to pay off half this nation’s annual budget deficit or most of this year’s defense outlays.

This is only the fourth year that Poles have been required to file income tax returns. In the past, the Communist regime took all the cash it needed before doling out wages. But Polish taxpayers are already struggling with one of the most ticklish questions of democratic societies.

Is it OK to cheat the government?

“I will not do it, but there are circles of people who will jump at any opportunity to cheat,” said Karina Lopienska, 43, a photographer filing her return this week at a Warsaw tax office. “During 50 years of communism, we were accustomed to thinking of government as ‘they,’ not ‘us.’ I think that is changing, but it is probably going to take a generation.”

At a crowded counter downstairs, Sylwia Malkowska, a 21-year-old student and part-time nanny, said she earned too little money to go through the trouble of claiming a deduction. But she would not hesitate, she said, if her salary were greater.

“I would guess every other donation being claimed has been fabricated,” said Malkowska, surveying the taxpayers around her. “And why not? The government is the biggest cheat of all.”

The new tax provision lets individuals make charitable donations to others, with virtually no proof of the gift’s legitimacy or authenticity. An exchange of words or a handshake, tax experts say, is sufficient to meet the code requirement. Auditors cannot even demand receipts.

Finance Minister Grzegorz Kolodko said the change was meant to help people in need of private philanthropy, such as the many families who appeal for funds to send sick children for treatment abroad. Under the previous law, tax-free donations could be made only to institutions or registered foundations.

But sloppy language turned an act of charity into a deductions free-for-all.

Aside from prohibiting gifts to people and organizations dealing with certain industries--such as tobacco and alcohol--restrictions on using the deduction were so vague that virtually everyone qualified.

One Warsaw office manager deducted the expense of installing a burglar alarm system in his mother-in-law’s apartment, claiming it under a category that allows gifts for “protection of health.”

A 20-year-old shopkeeper at the tax office this week said she had her teeth cleaned and bought a new pair of contact lenses courtesy of her parents, who claimed the same deduction.

Want to buy the kids a computer? Have grandma pay for it and deduct the expense under the “educational” category, one newspaper recommended, since nondependent family members are eligible for gifts.

Much to the government’s annoyance, newspapers have published detailed “how-to guides,” and even state-owned television has advised viewers on how to cash in on the government’s mistake.

Kolodko, who is being blamed for allowing the flawed tax provision to pass into law, has waged a one-man campaign against its abuse, threatening to audit taxpayers who claim the deduction and raising the fear of God among those contemplating anything untoward.

“He who doesn’t pay taxes commits a sin,” Kolodko told journalists. “Even saying three ‘Hail Marys’ will not exonerate him.”

As of last month, about 3,000 taxpayers who filed early returns asked regulators for them back so they could scratch out the deduction. Kolodko has promised amnesty for filing fraudulent returns--penalties run as high as $10,000--if taxpayers come forward on their own.

But according to one public opinion poll, less than 2% of taxpayers believe that they can get caught. And if they do not claim the deduction for 1995 income, they can try again next April. Legislation to close the loophole does not take effect until the 1997 tax year.