Poland to Lower Personal Income Taxes and Raise Corporate Tax Rate for Big Firms
Key Changes to Poland's Tax System and Economic Implications
By Karol Badohal
Overview of Proposed Tax Reforms
WARSAW, Aug 19 (Reuters) - Poland plans to change parts of its income tax system in a move that Prime Minister Donald Tusk, who came to power on a ticket to lower taxes, said on Wednesday would benefit around 3.5 million taxpayers.
Corporate income tax for the largest companies would be raised to compensate for the revenue shortfall, Tusk told a press briefing, while pledging to keep the country's high budget deficit in check.
Background: Rising Wages and Frozen Tax Brackets
With fast-growing wages in the past four years and tax brackets frozen since 2022, millions of middle-class Poles, the core constituency of Tusk's Civic Coalition, started paying the highest tax rate.
Personal Income Tax Adjustments
The government plans to raise the second personal income tax bracket threshold to 130,000 zlotys ($35,000), from 120,000.
At the same time, the tax rate for income between 130,000 and 150,000 zlotys will be lowered to 24%, with the current rate of 32% applying for income above 150,000, Tusk said.
Corporate Tax and Budget Deficit Considerations
Deficit in Focus
DEFICIT IN FOCUS
To compensate for the budget revenue shortfall, the corporate income tax for companies with revenue topping €50 million ($58 million) would be raised to 22% from 19%, he added.
Poland is grappling with a high public finance deficit, exceeding 7% of gross domestic product, which the government attributes to high defence spending.
Balancing Fiscal Responsibility
That means that while the government wants to reduce taxes, it must also be careful not to increase the deficit – a figure monitored by the European Commission and rating agencies.
"That is why this requires very cautious action. If we currently have a deficit of around 7% of GDP, it is obvious that it cannot be higher," Tusk said.
Reactions and Additional Measures
Finance Minister Andrzej Domanski said during the same press conference the changes more or less balanced each other out.
He said he expected a "slightly positive" reception of the proposed changes from rating agencies. Fitch Ratings, which currently rates Poland's credit at "A-" with a "negative" outlook, is scheduled to release its review on Friday.
Solidarity Levy and Tax-Free Allowance
The package also includes an increase in the so-called solidarity levy paid by the highest earners. The rate would rise by 1 percentage point to 5% on annual personal income exceeding 1 million zlotys ($268,000).
Tusk also said that although the government stood by its 2023 election promise to increase the tax-free allowance to 60,000 zlotys ($16,100) from 30,000 zlotys ($8,000), this was unlikely to happen in 2027 and 2028.
Next Steps and Currency Information
Legislative Approval Required
The proposed changes still need to be approved by parliament and signed by the president.
Exchange Rates
($1 = 3.7298 zlotys)
($1 = 0.8618 euros)
Reporting Credits
(Reporting by Karol Badohal, Anna Koper, Pawel Florkiewicz, writing by Marek Strzelecki, Anna Koper and Pawel Florkiewicz; Editing by Alex Richardson)
