Proposals to change income tax in the coming year
Proposed changes to the tax law are always a risky topic to cover as they are often out of date by the time the Business Journal hits the newsstands. But with the new coalition government just finding its feet, I feel I'm on pretty safe ground to address the issue of personal income tax (PIT).
For the PIT law to be altered in the coming year, the final approved draft must be published in Dziennik Ustaw no later than Nov. 30. But before that can happen, it has to be approved by the Sejm, the Senate and President Aleksander Kwaśniewski, who vetoed amendments to the PIT law a few years ago.
At the moment, the proposals for next year are likely to reach the Sejm during its second or third sitting (the first being held on Oct. 19). Deadlines are tight, guaranteeing only minor and non-controversial changes under normal circumstances. But with the budget deficit being the black hole that it is, stern measures are being called to guarantee additional funds in 2002, making the arguments for more controversial proposals less vigorous than usual.
According to insider scuttlebutt, the proposals are likely to include the following:
Freezing tax brackets at 2001 levels, effectively increasing the proportion of your income that is subjected to tax at higher rates. To soften the blow, there are proposals to increase the tax-free amount in line with inflation.
Imposing a tax, potentially at a flat rate of 20% on bank savings and treasury bond interest (which, to date, have been tax exempt), to be withheld at source by the bank, without a requirement to declare it further in your annual return. Again, as a softener it is proposed that stock-exchange gains will continue to be tax free. This new tax is estimated to bring in zł. 3 billion ($714 million) of additional income next year. This is assuming, of course, that we don't all rush out and close down our bank accounts and invest in other tax-free options or stuff the cash into our mattresses.
Removing building relief. You can still benefit from it (probably for up to three progressive years), so long as you start your construction work before Dec. 31. In other words, get out to that działka now and start digging while it's still tax effective to do so.
Removing the relief for land purchases for the purposes of building.
The exemption associated with saving money in a kasa mieszkaniowa (housing bank) is also under threat, but to ease the pain renovation relief is unlikely to be affected - for now.
Regarding the list of tax-exempt items, it appears these will be "looked at closely," whatever that means. However, it's likely that some or all of them will be on the chopping block such as store vouchers, which are tax free up zł. 700. The proposal is for these vouchers to lose their tax-exempt status and be treated as an additional cash benefit for PIT.
Joint filing for spouses is a huge question mark with rumors flying in all directions. It may remain in place, it may disappear, or it may stay on the books for families where only one spouse is working and earning an income and where that income does not exceed the first tax bracket.
So far, most of the above is speculation and educated guesswork. Hopefully by the time this column goes to print it will be known which proposals are being discussed.
Next time I'll take a look at how the negotiations are progressing, and whether the revisions to the proposals will be sufficiently advanced for me to come up with a more likely set of predictions for next year.
Anna Szymańska is a tax senior manager in the Warsaw office of Andersen.
