New income tax in 2018?

Are we going to have a major fiscal system overhaul in two years in Poland? It is pretty likely, as state officials reveal some ground-shifting plans with respect to Personal Income Tax and other state levies.

Henryk Kowalczyk, Chairperson of the Standing Committee of the Council of Ministers, in a press conference shared the ideas Polish government has concerning the future of Personal Income Tax. Apparently, there is to be none of it.

No details have been revealed so far, but the key concept is to introduce a new levy in the place of Personal Income Tax as well as pension contributions and other salary-related charges that are mandatory for both the employer and the employee in Poland. The new tax will combine all these obligatory levies.

Preliminary works on the new tax have started, intra-ministerial consultations are already taking place. The government plans to have the new system launched in January 2018. A substantial period of time is needed for the public institutions, mainly ZUS (Social Insurance Institution), to adapt to the changes, which involves a heavy update to their computer systems.

Obviously, the government wants state tax revenue to remain on the same level. Polish parliament has already considerably increased public spending by introducing the 500 plus child benefit programme. The opponents warn that public finances may be soon in danger of collapsing.

The new levy and its calculation is to be much clearer and simpler, and persons with low income are to benefit from the amendments. The current tax regulations in Poland are universally criticized for being voluminous, complicated and unprecise.

By letting the ZUS contributions go, and consequently lowering the labour costs, the government also hopes to give a boost to the labour market and entrepreneurship. Those with low income are to be exempt from paying social insurance contributions altogether. These are to be covered by the state.

Polish citizens at the beginning of each year are obliged to file PIT tax returns stipulating their total income. Needless to say, collecting tax, verifying the documents and administering tax refunds or liabilities is a heavy burden on the tax administration. The PIT tax consists of two rates: 18% for incomes below the threshold of 85 528 PLN and 32%.

Polish Prime Minister Beata Szydło confirmed the government is holding consultations on the project. In June the government will confirm if it will decide to turn the idea of a unified income tax into reality.