Poland Windfall Profits Tax: Analysis

Poland is currently moving forward with legislation aimed at introducing a windfall profits taxA windfall profits tax is a one-time surtax levied on a company or industry when economic conditions result in large and unexpected profits. Historically, such taxes have targeted oil and energy companies when costs have risen, especially from war or other crises.. In doing so, it is following a broader European trend of renewed interest in such taxes in response to rising fuel prices triggered by the conflict in the Middle East. While the prospect of additional taxA 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. revenues may be appealing, an important question remains: are short-term fiscal gains worth the longer-term economic consequences?

Why Are Windfall Taxes Appealing in Theory?

From a theoretical perspective, taxes on “excess profits”—also referred to as economic rents—are appealing because they are generally regarded as less distortionary than other forms of taxation. Economic rents are profits earned above the level necessary to justify an investment. They may arise from a firm’s favorable market position, lower costs, or temporary market conditions such as supply shortages or unexpected surges in demand. In theory, taxing such profits should not reduce production or investment incentives, since the taxed income would not have affected firms’ decisions in the first place.

The challenge, however, lies in identifying what constitutes an “ordinary” profit and what qualifies as an economic rent. In practice, this distinction is far from straightforward. If policymakers get it wrong, the tax may end up penalizing normal business activity rather than truly excess profits. This can create new economic distortions, discourage investment, and add further complexity to an already complicated tax system.

What Does the Windfall Profit Tax Proposal Actually Contain?

The windfall profits tax proposal has already been passed by the lower house of the Polish parliament (the Sejm) and is now awaiting approval by the Senate and President. The proposal would introduce a 60 percent tax on businesses engaged in the production or trading of liquid fuels, including fuel importers. It would apply from March to December 2026, and would be levied on the portion of fuel sales revenues exceeding a defined “normal” level. This threshold would be based on each firm’s average fuel sales margin in 2025, increased by 20 percent. According to the explanatory memorandum, this mechanism is intended to ensure that only “extraordinary” profits are taxed, while ordinary business profits remain unaffected.

What Are the Key Concerns with the Draft Bill?

The proposal’s advocates point to a need to raise revenue to finance earlier measures introduced to shield consumers from rising fuel prices, most notably the reduction of the VAT rate from 21 to 8 percent.

However, the proposal raises several concerns.

1. Profits in name, but how are they measured?

Although the levy is presented as a tax on excess profits, its design relies heavily on revenues and sales margins rather than on a company’s actual profitability. Some argue that the tax baseThe 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. does not fully reflect the costs incurred by fuel companies, including spending on logistics, distribution, and business development. As a result, the tax may also affect firms that are not generating unusually high returns.

Further concerns arise from the way “normal” profits are defined. The proposal uses profit margins achieved in 2025 as the sole benchmark for determining excess profits. However, a single year may not provide a representative picture of a firm’s normal profitability, particularly in an industry characterized by cyclical fluctuations, high capital expenditures, and long investment horizons. Consequently, the proposed methodology may end up taxing not only windfall gains but also returns generated through ordinary business activity and long-term investment.

2. Harmful for investment and retroactive.

A main concern is the tax’s potential impact on investment. By increasing the tax burden on the fuel sector, the proposal lowers expected returns and creates regulatory uncertainty, which may discourage firms from undertaking long-term projects and taking investment risks.

Even more problematic is its retroactive nature. Although the legislation is still being debated in Parliament, it would apply to profits earned as early as March 2026. Combined with the additional tax burden, this weakens legal certainty and sends an unfavorable signal to investors who value stable and predictable tax rules.

3. A high tax rate, and it may not really be temporary.

Although the tax is officially intended to apply only in 2026, international experience shows that so-called “temporary” taxes are often difficult to repeal once introduced. Poland, too, has seen several tax measures presented as temporary become lasting features of the tax system.

The rate is also high. While it is lower than the 70 percent originally proposed, taxing broadly defined “extraordinary profits” at 60 percent will still impose a substantial burden on affected businesses. At 60 percent, this would tie for the highest rate across the EU.

4. An obstacle to the green transition.

The proposal may also hinder the green transition. Under EU policies, energy and fuel companies are expected to finance a significant share of investments in cleaner energy sources and low-carbon technologies. These projects require substantial capital and often involve long payback periods.

By diverting a large share of companies’ earnings to the public budget, the tax could reduce the funds available for such investments. As a result, a measure introduced to address a short-term fiscal challenge may end up slowing progress toward longer-term climate and energy goals.

5. Harmful for the capital market.

The tax would affect only a select group of companies, including many of Poland’s largest firms. The market reaction to the proposal illustrates its potential costs. Legislative work on the tax was accompanied by a decline in many Polish companies’ share prices, reflecting investors’ concerns about profitability and regulatory risk. Frequent tax changes and unexpected sector-specific levies can increase investor uncertainty, reduce the attractiveness of the Polish market for both domestic and foreign capital investment, and undermine confidence in the capital market’s role in financing economic growth and investment.

6. Limited fiscal benefits.

According to government estimates, the tax is expected to raise around PLN 4 billion (approximately EUR 930 million) in additional revenue. However, international experience suggests that windfall profit taxes are often less fiscally effective than initially expected.

What Could Be Done Instead?

The prospect of raising additional revenue quickly is understandably attractive at a time of significant pressure on public finances. However, the economic costs of such ad hoc measures can be substantial and long-lasting.

Rather than relying on temporary sector-specific taxes, policymakers should focus on building a coherent and predictable tax system that supports investment, savings, and long-term economic growth. Stable tax rules encourage businesses to invest, innovate, and take risks, ultimately generating higher tax revenues through stronger economic performance rather than through one-off fiscal measures.