Changes to the Personal Income Tax Law. More money in the wallets of (some) artists and creators?

The amendment to the Law on Personal Income Tax (PIT) is seen as a new solution for the optimal settlements for a specific group of taxpayers. In practice, the change is nothing more than the restoration (though incomplete) of what used to be.

The “new” idea of the government – a change to the PIT law – involves the liquidation of a 50% deduction limit of tax deductible costs, but not for everyone who has so far been covered by this limit – only for a specific group of taxpayers.  In practice, its introduction will mean that some artists and creators “at the end of the day” will earn more.

The idea to meet creators’ needs was proposed by the Ministry of Culture and National Heritage, which argued the state must be a patron of culture. Therefore, preferential tax conditions would apply to those whose:

– income derived from creative activity in the fields of architecture, interior architecture, landscape, city planning, literature, visual arts, music, photography, audiovisual works, choreography, the art of violin making and folk art, as well as journalism;

– income derived from artistic activity in the fields of acting and stage performance, theater directing and stage performance, dance and circus art, and in the fields of conducting, vocal arts, instrumental arts, costume design and scenography;

– income derived from the fields of audiovisual production of directors, writers, cinematographers and sound engineers, editors and stunt performers, as well as journalistic activities;

– income derived from participation in cultural and artistic competitions.

The legislature assumes that flat-rate costs are the main form of support for artists.  On 1 January 2013, the previous government introduced restrictions to the preferential settlement of tax deductible expenses, setting a limit of PLN 42,764, i.e. the equivalent of half the amount representing the upper limit of the first tax bracket. Above this amount – in the case of artists – there are no tax deductible costs. As a consequence, the change to the PIT law meant higher effective taxation of artists, which in turn led to “mass” set-ups of sole proprietorship companies (to use the “benefits” of 19% flat tax).

Considering the above, the current proposal of the government would have to be viewed in a different way.  In practice, the new solution is nothing else but an attempt to restore the situation prior to the amendment of the PIT law.  This is supposed to create (de facto restoration) “new” possibilities for more optimal settlements for a specific group of taxpayers and be convenient for creators.

While this legislative initiative itself may be assessed positively, narrowing down the group of taxpayers who will benefit from the preferential treatment to these particular groups of creators is puzzling. There are many other groups of artists not included in the draft regulation who will not benefit from the amended law, for example translators, IT industry, and others not listed in the film industry.

A list of proposed exceptions to the rule of restricted 50% tax deductible costs is quite long, but for unknown reasons it seems incomplete.

In September, the draft amendment to the PIT law, was submitted for public consultation.

The amendment would enter into force on 1 January 2017. Let’s hope, though, that in the course of work on the project, the catalog of those covered will be amended or supplemented.