Poland is moving ahead with a proposed windfall profits tax on the liquid fuels sector, following a wider European trend of using sector-specific taxes in response to elevated fuel prices. The measure could raise short-term revenue, but it also raises concerns about investment, legal certainty, capital markets, and long-term energy policy.
A windfall profits tax is a surtax imposed when companies or industries earn large and unexpected profits because of unusual economic conditions. Such taxes have historically targeted oil and energy companies during periods of war, supply disruption, or sharp price increases.
In theory, taxes on “excess profits” can be less distortionary than other taxes because they target economic rents: profits above the level needed to justify an investment. If applied accurately, such a tax should not reduce production or investment incentives because the taxed income would not have influenced business decisions.
The practical problem is defining what counts as “ordinary” profit and what qualifies as a windfall. If the distinction is drawn poorly, the tax can end up penalizing normal business activity, discouraging investment, and increasing complexity in the tax system.
What Poland’s proposal would do
The draft legislation has already passed the lower house of the Polish parliament, the Sejm. It is awaiting approval by the Senate and President.
The proposal would introduce a 60% tax on businesses involved in the production or trading of liquid fuels, including fuel importers.
The tax would apply from March to December 2026. It would be levied on the portion of fuel sales revenues exceeding a defined “normal” level.
That normal level would be based on each company’s average fuel sales margin in 2025, increased by 20%. According to the explanatory memorandum, the goal is to tax only “extraordinary” profits while leaving ordinary business profits unaffected.
Supporters argue that the revenue is needed to finance earlier measures designed to shield consumers from rising fuel prices, including a reduction of the VAT rate from 21% to 8%.
Main concerns with the proposal
Although the tax is presented as a levy on excess profits, its design relies heavily on revenues and sales margins rather than actual profitability.
This creates a risk that the tax base may not fully account for companies’ costs, including logistics, distribution, and business development. As a result, firms that are not earning unusually high returns could still be affected.
The use of 2025 profit margins as the sole benchmark for normal profitability also creates problems. A single year may not accurately reflect normal profitability in an industry with cyclical fluctuations, high capital expenditure, and long investment horizons. The methodology may therefore capture returns from ordinary business activity and long-term investment, not just windfall gains.
Investment and retroactivity risks
The proposal may reduce expected returns in the fuel sector and create regulatory uncertainty. This could discourage companies from undertaking long-term projects or taking investment risks.
The retroactive element is especially sensitive. Although the bill is still being debated, it would apply to profits earned as early as March 2026. This weakens legal certainty and may send a negative signal to investors who rely on stable and predictable tax rules.
High rate and uncertain temporary status
The tax is officially intended to apply only in 2026, but temporary taxes can be difficult to repeal once introduced. Poland has previously seen tax measures presented as temporary become permanent parts of the system.
The rate is also high. Although it is lower than the 70% rate originally proposed, a 60% tax on broadly defined extraordinary profits would still impose a large burden on affected companies. At that level, it would tie for the highest rate across the European Union.
Impact on the green transition
The tax may also affect investment in cleaner energy and low-carbon technologies.
Under EU policy expectations, energy and fuel companies are expected to finance a significant share of investment in cleaner energy sources. These projects require substantial capital and often have long payback periods.
By directing a large share of company earnings to the public budget, the tax could reduce funds available for these investments. A short-term fiscal measure could therefore slow longer-term climate and energy goals.
Capital market effects
The proposal targets a select group of companies, including many of Poland’s largest firms.
The market reaction showed investor concern. Legislative work on the tax was accompanied by a decline in many Polish companies’ share prices, reflecting worries about profitability and regulatory risk.
Frequent tax changes and unexpected sector-specific levies can increase uncertainty, reduce the attractiveness of the Polish market for domestic and foreign investors, and weaken confidence in the capital market’s role in financing growth and investment.
Limited fiscal benefit
Government estimates suggest the tax would raise around PLN 4 billion, approximately EUR 930 million, in additional revenue.
However, international experience suggests that windfall profit taxes often raise less revenue than initially expected.
Alternative approach
The appeal of quick revenue is clear during a period of fiscal pressure. But ad hoc, sector-specific taxes can carry long-term costs.
A more stable approach would focus on a coherent and predictable tax system that supports investment, savings, and long-term economic growth. Stable tax rules can encourage businesses to invest, innovate, and take risks, generating revenue through stronger economic performance rather than one-off levies.
Source article: taxfoundation.org
