Ten to fifteen years ago, I visited Poland a couple of times each year. At first, Poland seemed behind us. It felt like the country was not developing and its standard of living was lower than ours. Statistics confirmed this. In 2014, Poland's GDP per capita based on purchasing power parity was 68 percent of the European Union average, while Estonia's was 78 percent.

In the meantime, I have not visited for about ten years, but I have still followed Poland's economic statistics. Poland stands out for its development and has become one of Europe's most exemplary countries. You could even say that the ugly duckling has turned into a beautiful swan. Just like in the fairy tale.

And that same GDP per capita based on purchasing power parity was 81 percent of the EU average in Poland last year. We are still in the same place, at about 79 percent. After the recent inflation adjustment, the number will be slightly higher, but the level is essentially the same as it was more than ten years ago.

People say seeing is believing, and this year I visited Poland for the second time. Not the capital, but elsewhere. At the beginning of summer in Krakow and now also in southeastern Poland in Rzeszów.

Statistics do not lie — Poland has developed rapidly. Proper highways. Many new buildings have been built and old ones renovated. At every moment you can sense development and life. You could feel it even in street cafés, where it is hard to find a seat.

From VAT to other taxes

More than ten thousand people having dinner at Krakow's main square is probably not surprising, since it is a major tourist center. But a couple thousand people having dinner every evening at Rzeszów's main square and its surroundings surprised me. I was especially surprised by how many locals were there in addition to veteran athletes. And these cities are not seaside resorts where people go on vacation in summer.

And prices are naturally lower than ours. At least by a quarter.

How do they achieve this? I am not claiming to present a thorough study of price formation in restaurants in Tartu and Rzeszów. For that, you would need to know rent levels, food prices, and wages, but let's simply look at VAT.

Poland's general VAT rate is 23 percent. But several different rates apply to food.

A 5 percent rate applies to many basic food items: bread and pastries, unprocessed meat and fish, dairy products, eggs, vegetables, and fruit.

An 8 percent rate applies to certain prepared foods and most restaurant services.

The 23 percent rate applies to alcohol, soft drinks, energy drinks, and many other goods that do not qualify for reduced rates. Alcohol purchased in restaurants is also taxed at 23 percent.

So VAT is lower on basic foods, many food products, and food services. In my opinion, this is a very logical division. Yes, it is more complex than our system, but with modern technology it is not overly complicated.

Since VAT is lower in Poland but the overall tax burden is the same as in Estonia, the shortfall must be compensated with other taxes.

Let's also look at personal income tax. Individuals have an annual tax‑free income of up to 30,000 zlotys, or about €580 per month. For annual income between 30,000 and 120,000 zlotys, the marginal tax rate is 12 percent. Income above 120,000 zlotys is taxed at 32 percent. For reference, one euro is about 4.3 zlotys.

In addition, those whose annual income exceeds one million zlotys pay a 4 percent solidarity tax on income above that threshold. So if annual income is above €230,000, everything above that amount is subject to an additional tax.

Compared with us, lower‑income people are taxed less. From food VAT to income tax. This helps keep competitive prices in labor‑intensive sectors such as food service and hospitality. Lower service prices also mean a lower overall cost of living, reducing pressure on wages in other sectors. Economist Heido Vitsur has written repeatedly about the positive aspects of such taxation, and I will not repeat him here.

It should also be noted that there are tax benefits for young people up to age 26. Families can file joint tax returns, and families with at least four children receive additional tax benefits.

Estonian corporate income tax in Poland

While studying Poland's tax system, I discovered to my surprise that Poland uses two corporate income tax systems, and one of them is called estoński CIT. Polish companies can choose between the so‑called traditional system and the Estonian system.

However, unlike in Estonia, the Estonian system in Poland has restrictions, and under certain conditions a company returns to the traditional tax system. To use the Estonian system, a company must generally have at least three employees, all shareholders must be private individuals, the company cannot hold shares in other companies, and passive income cannot exceed half of total income.

Poles deserve credit. They adopted the idea of our corporate tax system but added restrictions aimed at directing tax benefits primarily toward real economic activity and job creation.

Because from a macroeconomic perspective, there is a big difference between using untaxed profit to buy Apple or Amazon stock and using it to build a new hotel or buy a new production line. In one case, jobs are created here; in the other, they are not.

More openness and learning

I do not think Poland's economic success is solely due to its tax system. Poland's success naturally has many other reasons, such as a large domestic market, European Union investments, its own currency, foreign investment, and in recent years a strong inflow of labor.

However, Poland's success shows that rapid economic growth is entirely possible even with a more complex tax system and progressive income tax. And it also shows that we must learn from others and adopt the best parts.

It would be nice if we could shed the dogma before the elections that the only virtue of a tax system is simplicity, not to say primitiveness.

A tax system is not just a way for the state to collect money. It can influence investment, employment, consumption, and economic competitiveness. Poles seem to understand this very well.

More openness and learning would do us good. I do not want to listen to the same record for thirty‑five years.

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