Unraveling the many tax conundrums for 2002

This week I'm starting my column with a quote from an old British sitcom, "Yes, Prime Minister," which sums up the unfolding events of the past weeks and months regarding Poland's fiscal policy for 2002 and beyond.

"Ah, Humphrey (who is a faithful civil servant from the Finance Ministry and is being summoned by the prime minister). Do come in … the opinion polls say that the public thinks the tax system is too complex, Humphrey. Can you explain why?"

"Well, prime minister, the provisions of the taxation legislation aim to provide the public with a proper provisional basis for central government funding in relation to treasury requirements. Those provisions translate, in practice, into transitional proposals, relative to treasury estimations relating to basic public provisions - provided that these proposals prove practicable and prudent, and that the relative procedures are procured by those in public practice, of course. Now, if those in public practice were to propose the provision of a more practicable plethora of taxation, it would become not only possible but entirely plausible that the whole panorama would render itself open to perilously painstaking perusal by the proletariat, from whom those very provisions are prone to preclude, in practice."

"… What?"

"… It's called treasury policy, prime minister …"

I leave the scene above without comment, as I believe it speaks for itself. Anyway, as promised, with the new personal income tax law now signed by President Aleksander Kwaśniewski, I will try to set out below in simple terms what we can expect to receive or hand over to the tax authorities.

As predicted, the tax brackets fixed for this year will remain frozen throughout 2002 and 2003, unlike previous years when they have traditionally been increased annually in line with inflation. What this means in real terms is that you will be paying higher levels of tax on more of your income than in previous years. Fortunately, however, the suggestion that a fourth tax rate of 50% should be introduced was not accepted, so we are left with the three progressive rates of 19%, 30% and 40%.

20% tax back for managers

That's one piece of good news, not only from the tax perspective, but it also underlines that someone at the ministry actually does look at the consequences of what has been passed as law. Those of you who performed management services (rather than technical) in Poland under the terms of a personal service contract (umowa zlecenia) and who (subject to fulfilling the necessary requirements) recall paying a flat rate of tax of 20% on fees received back in 2000, will recall how the addition of a further source of income in this year's personal tax law - the "management contract" - threw that benefit out the window.

This resulted in your having to pay full progressive tax rates up to 40% of your income, with the added confusion and uncertainty of whether there was a monthly or an annual filing requirement. To cut a long story short, the problem last year was that when adding the additional source of income in one paragraph, someone clearly forgot to make an analogous addition in a subsequent paragraph. This has now been corrected, so from Jan. 1 everyone performing management services under a personal service contract, even though it will still be considered a management contract, will once again (subject to fulfilling the necessary requirements) be able to benefit from the 20% flat rate of taxation.

The new law has also introduced an administrative burden regarding the 20% rate. To date, this has been a monthly tax and it will remain as such. At year-end, each individual who received income subject to this flat-rate tax received information called an "IFT1" or summary of the total annual income subject to flat-rate taxation and confirmation of the amount of tax forwarded to the tax office. That was, however, too easy. From Jan. 1, not only will it be necessary for the PIT 8A to be completed for the group, but individual IFT1s will have to be prepared each month and not only for the individuals concerned, but for the tax office.

The "new" building relief has also been a hot topic of conversation - it is now in the form of a mortgage interest relief and nothing if not complicated and restrictive. This is not a topic I wish to dwell on, unless any of you have a particular interest, in which case let me know and I can make it the subject of a later column.

Levying savings

Another topic is the introduction of a savings interest tax of 20% (flat rate). This has caused quite a stir, with banks falling over themselves with ideas for getting around the small print and ensuring that your savings remain safe from the tax man. Because any hope of saving your cash from this tax depended on your investing it, or promising to invest it before Dec. 1, there seems little point in dwelling on this tax now.

One small tax that hasn't caused much of a stir but which annoys me is the 2% tax fixed on transfers of money abroad representing capital turnover as defined by the Foreign Exchange regulations. This is a subject I intend to come back to in more detail, but for now, suffice to say my heart sank on reading an article in the yellow pages of the Rzeczpospolita daily (Nov. 29) that suggested this tax would be imposed even on sums transferred to personal bank accounts abroad. Fume, fume … not only do they tax my income in ever-increasing amounts, but they then intend to impose a further 2% tax when I send my after-tax money home! Oh please, don't let this happen!

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

Anna Szymanska