A set of tax reforms creating a more progressive system by cutting levies on lower earners has come into force at the start of this year as part of the government’s flagship “Polish Deal” package.
The ruling party argues that the programme will boost Poland’s development, and claims that most Poles will either benefit or not be affected. However, some economists, business groups and opposition politicians have warned that it will hit businesses and the middle class.
Meanwhile, a stimulus scheme for homeowners was launched today. And further measures to support families and small businesses taking part in public tenders are set to be approved this year and come into force by 2023.
The tax reforms were unveiled by the ruling coalition in May and approved by the government in September, before coming into force at the start of 2022.
Among the changes are an increase in the income-tax-free allowance to 30,000 zloty (€6,550), almost ten times higher than the previous 3,091 zloty (€675).
The annual earnings threshold for entering the bracket for the highest income tax rate of 32% has been raised to 120,000 zloty (€26,200). Additional tax allowances are available to married couples as well as families with at least four children.
The tax cuts are being balanced by increasing social security payments and health contributions, which will now become non-deductible from tax for those paying flat tax (which includes many self-employed people) at 4.9%, but no less than 270 zloty.
The government estimates that 18 million people (from Poland’s population of around 38 million) will benefit from the changes, while 9 million will stop filing out tax forms altogether, as they will no longer pass the threshold.
Among the beneficiaries are an estimated 90% of pensioners, who receive up to 2,500 zloty every month for their retirement. Those who chose to continue working and not claim a pension, despite being of eligible age, will not pay income tax.
Speaking ahead of the new measures taking force on Friday, government spokesman Piotr Müller said that they would constitute “another element of the fight against the effects of inflation” by increasing wages and pensions.
Some economists have, however, argued that the government’s stimulus measures – along with recently announced energy and fuel tax cuts – could stoke inflation further.
According to the finance ministry, 530,000 businesses – mostly small ones, with monthly revenue of up to 6,480 zloty – will now pay lower tax and contributions, “making it easier to set aside capital for investments”.
Some business leaders, however, have argued that plans to make health contributions non-tax-deductible will hurt the middle class. Przemysław Pruszyński, a tax advisor at employers’ association Lewiatan, told Business Insider Polska that the new regulations would amount to the “largest ever tax increase for entrepreneurs” in Poland.
The government has also announced that it will introduce a minimum tax on large companies, both Polish and international, of 0.4% of revenues, plus 10% of expenses used for tax optimisation purposes. It expects to collect an additional 2 billion zloty (€441 million) in state revenue from large companies.
Other changes which came into force this week include simplifying formalities for the construction of houses up to 70 square metres in size.
Moreover, the government will grant guarantees of up to 20% of housing loans, with an upper limit of 100,000 zloty for a minimum period of 15 years.
The state will also offer one-off repayments of some housing debt when families have children: 20,000 zloty on the birth of the second child and 60,000 zloty on the birth of the third.
As health contributions increase, an additional 7 billion zloty is to be channelled into the healthcare system.
“Greater revenues from health contributions will allow us to increase financing for hospitals as well as to support important fields of medicine such as oncology and child psychiatry,” said Filip Nowak, president of the National Health Fund (NFZ), which finances Poland’s public healthcare system
At the start of 2022, the government also launched a new child benefit scheme. Under the so-called “parental care capital” programme, parents will be entitled to 12,000 zloty (€2,610) for each child after their firstborn between the age of 12 and 36 months.
The remaining elements of the Polish Deal are set to be approved this year and come into force in 2023. These include measures to support families as well as a mechanism to help businesses to compete in public tenders.
To see all of our coverage of the Polish Deal, click here.
Main image credit: Krystian Maj/KPRM (under CC BY-NC-ND 2.0)
Maria Wilczek is deputy editor of Notes from Poland. She is a regular writer for The Times, The Economist and Al Jazeera English, and has also featured in Foreign Policy, Politico Europe, The Spectator and Gazeta Wyborcza.
