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4 September 2019

PIT rate reduction to 17%. The balance of profits and losses

In July, the government decided to reduce the PIT rate from 18% to 17% for revenues from the first tax threshold, while also raising tax-deductible costs. The amendment to the Income Tax Act still causes a lot of controversies. The regulation is to enter into force on October 1st, 2019.

The ordinance that lowers the PIT rate applies only to the first tax threshold. The second tax threshold will remain at 32% with a threshold amount of PLN 82,528. This is another attempt to diminish the so-called tax wedge (the difference between the net salary and the amount the employer conveys due to the labor costs).

The bill also provides for doubling the flat tax-deductible rate. Changes in this field have not been done for over a decade in domestic law. The change will primarily benefit people who handle business in person, like contract managers or members of supervisory boards.

Who will benefit from lower PIT?

The reduction will cover all taxpayers who earn taxable income on general terms – using a tax scale (and thus will also include pensioners and entrepreneurs who have not chosen a flat tax or a lump sum on recorded income concerning non-agricultural business income).

PIT reduction to 17% – profit for employees

The undeniable gain of the new regulation will be a higher net salary for all employees in 2019.

 

Gross salary Gross savings per year (2019)
PLN 2250 PLN 472
PLN 4765 PLN 732

 

Tax-deductible costs will also change significantly, as follows.

 

Employment Tax deductible cost (currently) Tax-deductible cost
(according to the new bill)
One job PLN 1 335 PLN 3 000 yearly
One job, commuters PLN 1 668,72 PLN 3 600 yearly
More than one job PLN 2 002 PLN 4 500 yearly
More than one job, commuters PLN 2 502,56 PLN 5 400 yearly

 

 

PIT reduction to 17% – losses for local government

However, critics and analysts agree that the quick procedure for implementing such an important and toilsome change for the administrative sector can cause procedural chaos.

Not only the national budget (it is expected to cost the state about PLN 6.3 billion a year) but also – significantly – local governments and Polish cities will lose on the PIT reduction project.

Due to the lowering PIT rate, many Polish cities will have to give up important investments worth millions of PLN. According to a local government source, over 70 cities that belong to the Association of Polish Cities have already reviewed the enacted investment plans. After the PIT rate decreasing Act, not all of the investments will be funded. It concerns, among others, financing public transport and educational infrastructure.

ARPI Accounting is a part of ARPI Group, a Norwegian holding which started to operate in Poland in 2001.

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