Polish governance 2.0 – selected changes in reliefs and exemptions

THE ABOLITION OF THE MIDDLE-CLASS TAX RELIEF

Praised by some, but criticised by most due to the complexity of the calculations and the rules governing its application. The middle-class tax relief is being removed from the legislation. The complex algorithm adopted by the legislator was not well received by employees, employers and accountants, on whom the greatest burden of maintaining accurate records would have fallen. Another drawback of the solution was its limited scope of application, the extension of which also posed many difficulties for the legislator. The intention is to offset the abolition of this relief by reducing the tax rate in the so-called first bracket to 12%.

SINGLE PARENTS

We have finally seen the abolition of the ‘relief’ – which was unfair to many – limiting the tax deduction for single parents to PLN 1,500, a measure that proved to be misguided and would in fact result in a tangible loss for some eligible individuals due to the reduction in relief compared to the previously applicable rules.

The legislator has therefore decided to amend this provision by introducing a preferential tax mechanism based on calculating tax at double the rate applied to half of the income of a single parent, taking into account Article 7, whereby the sum of such income does not include income (revenue) taxed on a flat-rate basis under the rules set out in the PIT Act, if the parent or legal guardian is a single person, a widow, a widower, divorced, a person in respect of whom a separation has been ordered within the meaning of separate regulations, or a person whose spouse has been deprived of parental rights or is serving a custodial sentence, provided that such a person is a single parent raising children in the tax year:

1. minors,

2. adults who, in accordance with separate regulations, received a care allowance (supplement) or a social pension,

3. adults up to the age of 25 who are studying at schools referred to in the provisions governing the education system or higher education, in force in the Republic of Poland and in another country.

RULES FOR ADDING THE INCOME OF MINOR CHILDREN

This corresponds to an amendment to Article 7 of the PIT Act, which adds pensions to the list of income. The aim is to include pensions under the preferential treatment of the tax-free allowance. Additionally, such a pension is not to be included in the basis for calculating the health insurance contribution.

Clarification of certain allowances

The amendment also introduces clarifying changes regarding, amongst other things:

• relief for young people (Article 21(1)(148) of the PIT Act),
• relief for returning residents (Section 21(1)(152) of the PIT Act),
• relief for 4+ families (Section 21(1)(153) of the PIT Act)
• tax relief for working seniors (Section 21(1)(154) of the PIT Act).

As part of the exemptions, the types of income covered have been extended to include maternity benefit, as referred to in the Act of 25 June 1999 on cash benefits from social insurance in the event of sickness and maternity.

“PAŁACYK+” RELIEF

Changes effective from 1 January 2023 include a clarification of deductions from the tax base, specifying that the relief will apply to expenses:

• incurred during the tax year for contributions to the renovation fund of a housing community or housing cooperative established, in accordance with separate regulations, for an immovable monument entered in the register of monuments or listed in the register of monuments;
• for conservation, restoration or construction works on an immovable monument entered in the register of monuments;

Author

Piotr Magda

Radca prawny, Senior Associate

The practice includes ongoing advice on administrative and tax law. He has extensive experience in handling judicial, administrative, tax and judicial-administrative proceedings concerning both individual clients and business entities, including that gained through many years of providing services to local government units and other units of the public finance sector.

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