Automatic inflation indexing of tax brackets may matter more to taxpayers than the introduction of a new PIT rate, Marek Kolibski, a partner, tax adviser and attorney at the KNDP law firm, told PAP. PIT is Poland’s personal income tax.
In his view, years without indexing have meant a real increase in the tax burden. He explained that as inflation pushed wages up, more and more people fell into higher tax brackets and paid higher taxes, even if the real purchasing power of their incomes did not grow.
– For 35 years, the lack of indexing of the brackets meant that taxes went up every year. Inflation drove wages higher, and taxpayers moved into higher brackets. It may not have been very visible to most people, but economically it meant a higher burden – Kolibski said.
He added that a similar problem affected the tax-free amount, which for years was also not indexed automatically and changed only sporadically and in jumps. The lack of inflation indexing of the tax-free amount now affects all taxpayers.
The adviser said the very idea of tying tax brackets to inflation deserves a positive assessment. He noted, however, that the amendment adopted by the Sejm, the lower house of Poland’s parliament, does not cover the tax-free amount.
– It’s a shame that indexing is to apply only to the tax brackets and not to the tax-free amount as well. That would be a more complete solution and a better one for all taxpayers – he said.
Kolibski also said that the change to the tax scale and the introduction of an additional PIT bracket may prove far less important than indexing.
– This is not some kind of revolution. The new rate will apply to a relatively narrow group of taxpayers. Raising the brackets and then indexing them automatically is much more important for the tax system – he said.
The expert pointed to doubts that have emerged about the impact of the changes on the state budget. He noted that during the parliamentary work, lawmakers also adopted an amendment dropping the planned increase in the CIT rate for the largest companies. According to earlier announcements from the Finance Ministry, that increase was supposed to be one of the sources of funding for the PIT changes. CIT is Poland’s corporate income tax.
– This raises questions about the final balance of these solutions for public finances. Perhaps we will only learn the answer at a later stage of the legislative work – he said. Perhaps the government quietly agreed to these changes.
Kolibski stressed that it is still too early to assess the final effects of the changes, because the bill now goes to the Senate and then to the president for his signature.
In his view, only the end of the legislative process will show whether experts’ longtime calls for indexing tax brackets will be permanently written into Poland’s tax system.
– Indexing of the brackets has been discussed for many years. It’s not a new idea. If the provisions are actually passed and take effect, it will be the first such systemic solution to this problem since the beginning of the transformation – the expert said.
On Thursday, the Sejm passed a law that raises the PIT tax bracket threshold from PLN 120,000 to PLN 130,000, introduces a second threshold of PLN 150,000, and sets a new 24% rate for income between PLN 130,000 and PLN 150,000. The tax brackets are to be indexed by the inflation rate.
At the same time, the Sejm adopted two minority motions. The first concerns an amendment submitted by Ryszard Petru of Centrum, which introduces automatic indexing of tax brackets by the inflation rate, to take effect in 2028.
The second adopted minority motion concerns an amendment submitted by Petru and independent lawmaker Janusz Kowalski. It struck from the law an increase in the CIT rate from 19% to 22% for the largest companies, those with revenues exceeding 50 million euros. (PAP)
