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Thursday, May 23, 2024

Financing local governments. PIT reform, more money for local governments from revenues

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According to Money.pl, the government is preparing a “revolutionary” tax reform that will change the local government financing system. They will receive a specific share of the income generated by residents, and not in the taxes collected from it. Calculations of the Ministry of Finance show that after the changes, next year local government units would receive PLN 27 billion more than this year.

Currently, local governments share in taxes collected by the tax office. The Ministry of Finance, according to money.pl, wants to change the system so that local government units (LGUs) have “a specific share in the income earned by their inhabitants”.

According to an anonymous source from Money.pl, “after the reform, PIT will become a de facto local government tax, and the budget will have at most some 'remnants'.” At the same time, the government is to change the rules for granting subsidies and the so-called janosikowy.

Greater revenues of local governments

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Money.pl notes that the introduction of such a mechanism will mean that any changes introduced in the PIT tax, e.g. new reliefs, will not reduce the revenues of local governments.

“As the calculations of the Ministry of Finance that we have obtained show, if such a system had been in operation last year, local governments' own income from PIT would have been almost half as high and would have amounted to PLN 77 billion instead of PLN 51.7 billion,” we read on the website.

Currently, the share of municipalities in personal income tax (PIT) revenues is 38.46%. The rest goes to the central budget.

The new model will take into account the “share of the local government in the income of PIT taxpayers residing in the area” of the local government unit.

“For communes, this share will be 6.5 percent, for counties – 1.6 percent, for cities with county rights – 8 percent, and for voivodeships 0.145 percent. In the case of CIT, these shares will amount to: 1.2 percent, respectively. , 1.35 percent, 1.32 percent, and for voivodeships – 2.58 percent. – says Money.pl

According to the website, the assumptions of the Ministry of Finance assume a significant increase in local government income from PIT and CIT taxes.

“Based on the preliminary data of the Ministry of Finance for 2025, in the case of PIT we are talking about an increase from PLN 85 billion to PLN 156 billion, and in the case of CIT – from PLN 24 billion to PLN 27 billion,” the website calculates.

Subsidies in a new way

Local governments are to have a larger share in taxes, and in return the subsidy model is to be reformed. As journalists point out, their needs are to be assessed in four respects: ecological, compensatory, educational and developmental.

How is this supposed to work? If there are nature reserves or national parks in the commune, it may be entitled to additional ecological support. In turn, in the case of compensation issues, the so-called wealth index, which is intended to show how the income of the commune's residents compares to others. However, not only them, but also information on the demographic structure and the use of social assistance are to be taken into account.

“The effect of changing this system is to be a complete reversal of the proportions between the money earned in a given local government and the money sent by the budget. According to the Ministry of Finance, the current ratio of local government revenues from PIT and CIT is 48% to 52%, Meanwhile, after the changes, own income would constitute as much as 80%, and the subsidy would only constitute 20%. – says the portal.

Janosik tax is also to undergo changes – i.e. the tribute paid by rich local governments to the poorer ones. “The change is to mean that local governments whose wealth index is above 120% for a given group of local governments will have their tax revenues reduced accordingly,” says Money.pl

Main photo source: Marc Venema/Shutterstock

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