The Polish government is preparing a law that would punish employers who pay wages under the table – rather than workers who receive such payments, as is currently the case – in a bid to encourage more whistleblowing.
The new rules are set to be part of the government’s flagship economic stimulus and tax reform plan, known as the “Polish Deal”. The aim is to tackle unregistered work that evades taxes and social contributions.
The finance ministry estimates that the new rules, set to come into force at the start of next year, will generate 1.5 billion zloty (€328 million) of additional tax revenue annually.
“Currently, the tax system does not adequately protect people who do not agree to work illegally,” said deputy finance minister Jan Sarnowski, quoted by Business Insider Polska.
Under the new rules, the burden of responsibility for declaring tax on wages would shift from workers to employers. Employees would no longer be required to pay the outstanding taxes along with penalty interest if they inform labour inspectors or tax officials about receiving payments under the table.
Instead, employers will now be subject to criminal liability for failing to declare tax on income paid each year. Sarnowski said that the proposed regulations would “completely reverse” the current situation by “providing protection” to the whistleblower and “shifting the burden to the dishonest employer”.
The official cast the change as a means of “discouraging those employers who do not care about the security of their employees, their insurance and employment stability”.
Under-the-table payments are believed to be widespread in Poland. A recent report by the Polish Economic Institute, a think tank, found that almost one in eight people (12%) in Poland who are working with an employment contract – around 1.4 million people in total – receive some of their wages off the books.
The report found that around 6% of the total of 600 billion zloty paid as wages for contract workers in Poland was cash-in-hand, which amounted to around 1.6% of GDP in 2018.
The authors warned that such payments “distort competition in the market, putting honest businesses in a worse position to businesses engaging in unfair practices”. They also negatively impact on workers’ rights and reduce government revenue.
Poland’s Law and Justice (PiS) government has won praise for its efforts to close the VAT gap, which stood at 23.9% when the party came to power in 2015. In 2018, Poland achieved the third largest decline in its VAT gap among all EU countries, closing it by 4.3 percentage points.
Main image credit: Narodowy Bank Polski/Flickr (under CC BY-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.
