Government-introduced reduction in personal income tax, in particular a significant increase in the tax-free amount, as well as a reduction in the PIT rate from 17% to 12% on the tax threshold to 120,000 PLN – will have the effect of reducing the amount of funds transferred to the Public Benefit Organisations as 1% tax. This will have a negative impact on the public tasks carried out by these organisations and on the aid to the beneficiaries.
The Ombudsman pointed out that from the information of the Ministry of Finance on quotas 1% tax due on natural persons transferred to the Public Benefit Organisations In 2021 it appears that the transfer 1% the tax due resulting from the settlement of the 2020, in favour of the OPP 15,300,000 taxpayers. On the other hand, In 2021 Public benefit organisations received the title together 1% the tax due resulting from the settlement of 2020 appropriations 972,700,000 PLN.
The Regulatory Impact Assessment could read data on the depletion of the above-mentioned amount: “In order to calculate the effects, individual data from the PIT declaration were used for the input 1% On OPP.
These data were then combined with system simulation results with 2021, system in force from 1 January 2022 and the proposed reform. On this basis, a theoretical loss for the transferred 1% to approximately. 194,000,000 PLN on the settlement for 2022, of which ok.
74,000,000 PLN System failure 2021 was created by the introduction of legislation in the current version, i.e. dn. 1 January 2022”.
Based on Article 45c(1) The PIT Act, the Chief of the Tax Office competent locally for the submission of tax return, transfers to the benefit of one public benefit organisation acting under the Public Benefit Act chosen by the taxpayer from the list referred to in the abovementioned Act an amount not exceeding 1% the income tax due. This solution has been in operation in the Polish tax system since 1 January 2004
Mode of operation of the equalisation mechanism
According to the wording of the project Polish Deal 2.0 dated 12 May 2022, if the total amount transferred to the OPP under 1% it would be lower than In 2022, the organisations would be compensated for the part of the income tax for the state budget. Base amount of 2022 it was to be indexed annually with an indicator of the medium-term dynamics of gross domestic product value at current prices.
The project envisaged two ways of dividing the alignment between the different organisations:
- by the algorithm – the money would be distributed between the OPP in the proportion in which they participate in the distribution of the proceeds from 1%;
- by an open tender competition.
The proposed law guaranteed that at least 30% the funds will be divided by the algorithm, and 30% by a contest. The Minister of Finance, in agreement with the Chairman of the Committee on Public Use, would decide on the exact proportions of this, and the Deputy Prime Minister and the Minister of Culture Piotr Gliński currently serves this function. Details would be set out in the Ministry of Finance Regulation.
The proposed mechanism therefore assumed that at least 30% the funds will be transferred through the algorithm and 30% by an open tender. The regulation of the Minister of Finance would already specify the exact proportions that can be achieved e.g. 50% / 50% or 70% / 30% in favour of an algorithm or competition mode solution.
If first of the above-mentioned compensation methods was a reasonable proposal from the rulings, based on an objective criterion, in terms of second there would be a risk of a discretionary approach to offset losses from 1% PIT.
Senate amendment that passed through the parliamentary vote
The Senate, in its explanatory memorandum to the amendments, stated that the equalisation mechanism was incompatible with the Constitution, as it provided for the annual regulation of matters of fundamental importance for the exercise of the powers of the Public Benefit Organisation i.e. to receive the amount of compensation for the financial damage and, therefore, authorises the implementing authority to lay down legal standards which go beyond the framework of the provisions issued only for the purpose of implementing the Act.
The Senate therefore proposed not to introduce a compensation mechanism and instead to increase support for OPP from 1% to 1.5%. Change is in the project Polish Deal 2.0 dated 9 June 2022
The parliamentary vote on the abovementioned amendment took part 452 Members, the absolute majority was therefore 227 Members. The amendment was rejected 225 Members against 227, Nobody stopped. The whole PiS club was against the amendment and two Members of the non-attached. No vote eight Members, including five from the PiS. Consequently, the amendment was accepted and appeared in the final draft Polish Deal 2.0 dated 9 June 2022, That works from 1 July 2022, However, this tool will apply from 1 January 2023
Krzysztof Dobies, President of the Avalon Foundation, commented: “This is a great success!!! A huge, qualitative change in the functioning of civil society and the Public Benefit Organization in Poland!
Not only has the political control over compensation for organisations been dismissed, but the best possible solution has been introduced – clear, fair, simple, effective and, above all, based on taxpayers' decisions.
This is what we and many other organizations have been asking for for months, and we have been talking about this throughout the battle in the Council of Ministers, the Sejm and the Senate. And our requests have been answered!’
Another sentence is the Deputy Minister Fixing Polish Deal – Arthur Sobon. In an interview with Dziennik Gazeta Prawna to the question:
„And another adopted Senate amendment increasing the deduction for NGOs from 1% to 1.5% was not the political fault of the Law and Justice?”
replied that:
„A more costly and less advantageous solution has been chosen. The chairman of the Committee on Public Use Piotr Gliński had previously proposed that the compensation 1% allocate some money pool to NGO competitions. The amendment of the Senate that we were unable to reject is a worse solution. Public benefit organisations are not equally distributed. Such organizations are ok. 10,000, But a few dozen of the biggest takers three fourth a whole pool of money. In addition, the system works with a yearly delay – we often contribute to a specific purpose within a large foundation, but in the meantime this goal can be achieved, for example, the child will recover and the money continues to flow.”
In my opinion, however, the solution to transfer 1.5% the tax on individuals by taxpayers seems more reasonable than the equalisation mechanism. It is only dependent on taxpayers' decisions without the involvement of politicians in the process of allocating funds to support OPPs.
Besides, it is a simple system that has worked for many years.
In turn, for the proposed alternative solution proposed by the government, additional actions such as the adaptation of the Ministry of Finance's IT systems in terms of a new algorithm or the creation of an offer competition cell, which would generate additional costs, would be necessary.
Mateusz Krawczyński
About the author: Junior tax consultant At Russell Bedford Poland. Graduated from bachelor's degree in Logistics and Master's degree in Finance and Accounting. He is currently studying the Law at Lazarski University. Previous professional experience in tax matters In one of Big Four companies. He specializes in tax on goods and services, in particular with regard to VAT settlements in local government units.