Tax worries over? Not according to new brackets

With 2001 taxes now behind us, as well as the traditional May long weekend to help all of us poor tax payers to get over the shock of just how much we had to pay on our meager earnings, I thought I'd devote this week's column to a more lighthearted look at tax. I start with a short note to the tax man written by an anonymous tax payer only days after the annual filing deadline and triggered by a minor attack of conscience: "I have been unable to sleep, knowing that I have cheated on my income tax. I understated my taxable income, and have enclosed a check for $150. If I still can't sleep, I will send the rest." Believe me, it's better to pay up than to be caught and fined - a simple day's delay in filing your annual return (with no thought yet to penalties relating to the actual tax liability) can cost you between zł. 1,520, if it goes no further than the tax authority, and zł. 15,200 if the matter goes to court. "Court?" I hear you ask. Yes, "court." These are now matters that fall within the ambit of the Fiscal Penal Code - in short they classify as a criminal offense!

I fought the law Oops! I had promised this would be lighthearted didn't I? To cheer you up, Poland is not the only country to take its taxes seriously. In one raid on a taxpayer's house in the U.K., the Inland Revenue (the U.K.'s tax authority), the suspect, his adviser and the police were all sitting round a table when the Revenue asked to see some documents. The suspect said he'd go and fetch them. When he hadn't returned 15 minutes later, the Revenue realized he'd done a bunk. He'd also locked them all in the room. In fact, he'd taken the documents and got away with them across the roof. The police missed him at Heathrow by about an hour. Needless to say the documents disappeared. The suspect's associate is at this moment sitting in prison.

Fairy tales Still on the subject of the seriousness of tax, touching is the story of a tax adviser who took great care in teaching his offspring about the need to be financially aware and had just read the story of Cinderella to his 3-year-old daughter for the first time. The little girl was fascinated by the story, especially the part where the pumpkin turns into a golden coach. Suddenly she piped up, "Daddy, when the pumpkin turned into a golden coach, would that be classed as income or a long-term capital gain?" But enough of this silliness and back to more serious matters - my last column was devoted to a feature written by Peter Ferrigno on the proposed changes to the U.K. domicile and residence regulations. I wonder whether the change was prompted at least in part by the plight of one poor individual who, having worked abroad for some years and made several attempts to have his non-resident status recognized, eventually received a letter in August 2000 from the Revenue saying he was resident and ordinarily resident for tax years 1994-1995 and 1995-1996. This was swiftly followed by assessments and a tax bill. To add insult to injury the assessments demanded that an appeal must be made within 30 days, even though three months is allowed for an appeal where a question of residency is involved. Nonetheless appeals were made within 30 days and in the ensuing correspondence the inspector stated that the reason for deciding that he was resident and ordinarily resident was because "the average number of days spent outside (no this is not a typo!) the U.K. was greater than 91." So (U.K.) non-residents beware, if you want to maintain your non-resident status, be sure not to go away! Several letters and months later he received the following statement from the Revenue: "It has now been decided that the Revenue does not have sufficient grounds for maintaining their previous opinions."

Nottingham rules Another slightly less lighthearted story is that next year you probably won't have to earn any more money than you do today to pay the taxman more than you do today. It appears that Robin Hood is once again to be hero of the day and, cunningly disguised as the taxman, is once again to take up his time honored role of stealing from the rich to give to the poor ... or is he? It seems that the Finance Ministry (or should I say Robin's band of merry tax men?) is planning to reduce taxes for those earning the lowest wages, for 2003 their income tax rate will be lowered from 19% by the introduction of a new fourth tax rate of 12%. The ministry also plans to lower the threshold of the 30% tax bracket so that it includes those who earn annual incomes of up to zł. 32,500 instead of the current zł. 37,024. The 40% tax bracket is also scheduled to be lowered by zł. 9,000. In addition, the tax-free amount (currently zł. 518.16) is to be removed. While the lower wage earners will indeed ultimately benefit from these changes, they may not feel that benefit until some time in 2004 when they receive their tax rebates, having been forced to pay tax advances of (at least) 12% on their income during the whole of 2003. Despite appearances, those hardest hit are likely not to be those whose earnings are already well within the 40% tax bracket (that is, the technically rich) but those whose earnings are at the upper limit of the 19% and 30% tax bands who will now for the first time have a part of their income taxed at the 30% and 40% tax rates.

Anna Szymańska is a tax senior manager in the Warsaw office of Andersen.