On Monday, the Ministry of Finance announced the details of the tax reform, which is about to enter into force beginning of next year. The entire act has received mixed reactions, especially since the legislative proposal consists of 225 pages of provisions and 229 pages of justification, and the government initially allocated 2 weeks for consultations (currently increased to 5) during the vacation period.
The act provides support for people with the lowest income. The upcoming changes include: raising the first tax threshold and the tax-free amount. The act also provides a relief for the working middle class, which will apply to people employed under a contract of employment and earning certain income.
There hasn’t been such a change in the tax rules for over 10 years. We are talking about an increase in tax thresholds from PLN 85 528 to PLN 120 000 of annual income. The amount of the first tax threshold is to amount to PLN 34 472 000, while the second is to start above the amount of PLN 120 thousand (the tax is 32% from the second tax threshold).
If the tax-free amount will be increased, it’s about to be raised to PLN 30 000. This amount is to be equal for everyone, regardless of their income. For example, a similar regulation is in force in Germany. According to the Minister of Finance, these changes are to exempt 9 million people from paying PIT, which is to result in a profit of about PLN 9 billion for taxpayers. In addition, the tax-free amount is to apply to taxpayers who apply general rules in their tax settlements, so entrepreneurs and self-employed people who apply to a flat rate will be excluded. Local government officials are worried by the fact that increasing the free amount will result in loss of revenues for local governments, the losses which may amount to as much as PLN 11 billion.
The tax relief for the working middle class will be available to people whose annual income ranges from PLN 67 412 to PLN 133 692 (monthly from PLN 5 700 – 11 140). The purpose of the relief is to reduce losses related to the abolition of the possibility of deducting health insurance contributions. The structure of the relief excludes the possibility of using it by people earning money on the basis of civil law contracts or conducting their own business. It can be assumed that the assumption of this change is to reduce the number of so-called “junk contracts” (and in favor of proper employment agreements).
However, the Polish Deal is not only about changes related to the tax scale. The rules for taxing rental income outside of business activities are changing. It will no longer be possible to deduct tax costs in such situation, and the only option will be lump sum settlements on recorded revenues. The possibility of depreciating buildings and residential premises used in business activities (including those used outside rent) will disappear. The rules for entering assets into company records are changing (the key will be the market value, and not the purchase price as before). The sale of a post-leasing car used in business activities for private property will also be taxed. The catalog of specific changes is wide and will have a practical impact on the economic activity of many entities on the market.
The fate of specific provisions will depend on the course of consultations and parliamentary arithmetic. As planned by the government, in September we should get to know the final shape of the proposal.
The regulations will enter into force on January 1, 2022.