Reduction of the rate of income tax on individuals – consequences of the changes made 1 October 2019

This Article is intended to discuss the Sejm’s resolution 30 August 2019 changes in personal income tax 1 , aimed at reducing the tax burden on taxed income using a tax scale, in particular income from employment contracts. The article sets out the rules for calculating the tax according to the new tax scale, taking into account the new cost of obtaining revenue from 1 October 2019 The summary shows the real impact on the tax burden of the changes made.

1. Introduction

On 17 September 2019 The President signed the bill amending the bill with 26 July 1991 on personal income tax 2 , hereinafter referred to as the Amending Act. This law concerns a long-term real reduction in the rate of income tax for those obtaining income from employment contracts and overhead work. This objective is achieved by: two methods:

• - by reducing the basic tax rate from 18% to 17%;
• - by increasing the labour costs of obtaining revenue.

The amendment meets earlier plans to reduce the tax burden on workers, especially for those who receive the lowest wages (although changes effectively affect all those who earn labour income, taxed according to the tax scale). The amendments were introduced with almost immediate effect – from 1 October 2019

2. Reduction of labour costs

The new rules change the amounts indicated in the PIT Act, which constitute flat-rate revenue costs. The main changes in this respect are to increase them, which, in the case of monthly costs, means an increase from a ‘standard’ amount that has not been changed for a long time.

111.25 PLN to 250 PLN (for persons working in the same locality) and from 139.06 PLN to 300 PLN (for commuters from another municipality/locality). Annual limits on the cost of obtaining income for employees were also increased.

Changes in the flat-rate cost of obtaining income concern not only employees, but also individuals who obtain income from personal activities 3 .

As the amendment was introduced with effect from 1 October 2019, during the tax year 2019 other revenue costs for first third quarters and others for the last quarter. In such a situation, it was necessary to introduce appropriate transitional provisions.

Under these transitional provisions, as of October 2019 until December 2019 higher monthly income costs should be used. Taking account of higher revenue costs in the last quarter 2019 means that the total cost of obtaining revenues taken into account throughout the year will also change 2019.

Therefore, the transitional provision also increases the annual limits for 2019 in each category, as shown in the table below.

Table 1. Comparison of labour costs

Adopted in the bill amending the solution means that already in 2019 workers will be affected by the new cost-fixing rules by the actual reduction in their income taxation.

The proposed amounts seem to be a fair move towards realising lump sums to the actual expenditure borne by staff. For example, ticket costs 30-day in public transport in Warsaw is a bit above 100 PLN, in Katowice a little below 100 PLN, which means that to date 111.25 PLN the flat-rate cost actually covered only the cost of the standard monthly ticket, and this is not the only expense incurred by the employee, and not everyone has the opportunity to commute by public transport.

3. Lowering the PIT rate to 17%

The reduced tax rate is therefore 17% and replaces the existing 18% Tax rate. Full substitution of the basic rate will take place from 1 January 2020

The reduction in the rate of tax applies to all taxable persons who obtain taxable income on a general basis and apply the tax scale (including pensioners and traders who have not chosen a linear tax or a lump sum on recorded income in relation to non-agricultural business).

The following is a comparison of the tax scale in force to the new scale, which will be fully applied from the beginning 2020

Table 2. Tax scale applicable to 30 September 2019

Table 3. Tax scale applicable from 1 January 2020

As a result of the introduction of a new tax rate on income in first range, i.e. to base 85,528 PLN is an effective tax reduction for all beneficiaries of the tax scale. As can be seen in the above example, those with a tax base above that threshold will benefit from a reduction in tax by 855 PLN 28 gr.

New wording indicated Article 27 The PIT Act, determining the tax scale, will apply from 1 January 2020 However, according to the legislator's intention, changes beneficial to taxpayers are to apply from October 2019, Therefore, Article 6 The amending act indicated that when calculating the advance on income tax obtained in third past months 2019 a new rate should be applied 17% (instead of 18%) and a tax reduction amount of 525 PLN 12 gr.

Following this transitional provision, a special tax scale, applicable once only for the purposes of determining the amount of tax on a scale per 2019 in annual accounts. The tax scale presented below takes into account the fact that two rates over the period one tax year.

Table 4. Tax scale applicable from 1 October from 31 December 2019

Tax rate set at 17.75% allows to include proportionally three quarters 2019, where the rate was applicable 18% and the last quarter in which the rate is to be applied 17%. Following the changes to the tax rate, the provisions on the reduction amount have also been updated – in this case too, a transitional provision covering the period of the fourth quarter was necessary 2019

Table 5. Tax reduction amount — comparison

4. Summary

The above changes in the rate of income tax on individuals and the rules governing the cost of obtaining revenue concern all persons who obtain income. What is the economic effect for those benefiting from this form of taxation, i.e. practically for the majority of tax payers?

It will be noticeable to everyone, but its scale is not very large. As indicated above, in the case of persons with a tax base around the tax threshold (85,528 PLN), i.e. receiving a salary from one employment contracts of just over 9,000 PLN gross, they will receive a tax benefit of approx.

1,130 PLN (due to a reduction in the tax rate of approx. 850 PLN the annual amount and the increase in the cost of obtaining revenue will benefit less than 24 PLN per month, i.e. another 280 PLN on a yearly basis).

Indicated indicative amount 1,130 PLN per year applies to people who earn relatively much, and this is the benefit that will be really felt in 2020 For persons with income exceeding the minimum wage, e.g. 3,000 PLN gross, the benefit of the changes will mean tax savings of the order 550 PLN year 2020.

Accounting for revenue 2019 we will feel these changes proportionally in 25% previously identified differences in 2020.

Whether it's a lot or a little I leave for an individual assessment. Still worth paying attention to one fact – the tax threshold remains unchanged 85,528 PLN. This value does not change from 10 years, meanwhile in 2009 average salary was little above 3,000 PLN gross (currently over 5,000 PLN gross) and consequently the number of taxpayers whose income is subject to a higher rate of tax (in excess of double the available statistics) increased significantly.

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1 Act of 30 August 2019 amending the Personal Income Tax Act and certain other laws, Journal of Laws of 2019, item 1835, hereinafter referred to as the PIT Act.

2 T.J. Journal of Laws of 2019, item 1387 as amended

3 Article 13(5)(7)(9) PIT Act.