How Poland’s fiscal system shifts the burden without debate

This article is a part of Poland Unpacked. Weekly intelligence for decision-makers

The uniqueness of the levy

As many as 2.4 million people are now falling into Poland’s second tax bracket, the Ministry of Finance (MoF) recently reported. This means that on marginal income above PLN 120,000 (approx. EUR 28,000), they pay 32% personal income tax. Effective rates are, of course, lower, but they are rising. However, not all income taxes in Poland are increasing as a share of GDP. Moreover, not all are rising even in nominal terms.

The exception is the solidarity levy. In 2025, revenues from it fell by PLN 191 million (approx. EUR 44 million) compared with the previous year, according to a recently published report on the execution of the state budget. The Ministry of Finance, by contrast, had expected an increase of nearly PLN 300 million (approx. EUR 70 million).

A bit of history

To recap: this tax, classified under EU methodology as part of personal income tax (PIT), was introduced in 2019. The first payments were made in 2020, based on income earned in the previous year. The levy is set at 4% and applies to income above PLN 1 million (approx. EUR 230,000). In practical terms, an individual earning, for example, PLN 1,000,003 (approx. EUR 230,001) in a given year would pay an additional tax of just PLN 0,12 (less than EUR 0.01).

The income subject to the levy is total income – after deducting social security contributions – derived from the progressive tax scale, flat-tax business activity, as well as selected categories of capital income reported individually, such as proceeds from share sales declared in PIT-38 tax statement.

In 2020, revenues from the levy amounted to PLN 1.84 billion (approx. EUR 420 million), rising by more than 40% in the following year. Some taxpayers were able to time transactions (for example, selling shares) already in 2018 to avoid paying the tax in its first year of operation. Due to these timing shifts, it was the 2021 revenue figure – rather than that of 2020 – that more accurately reflected the tax’s true capacity to generate income.

In 2022, revenue growth was already more moderate, at around 7%, slightly below nominal GDP growth.

Exodus to lump-sum taxation

Everything changed with the introduction of the so-called Polish Deal (Polski Ład). Since then, a preferential method of settling health insurance contributions has applied under the lump-sum tax on recorded income (PIT-28), compared with other forms of health contribution settlement for non-agricultural business activity. This, alongside other changes, triggered an explosion in the popularity of the lump-sum regime.

The lump sum is not subject to the solidarity levy. This is because it is assessed on revenue (rather than income). This created another incentive – in addition to lower health insurance contributions – for taxpayers to switch to the lump-sum regime, for example from the flat tax.

Explainer

Poland uses a two-tier progressive tax system:

First threshold (up to 120,000 PLN annual income):

12% tax rate
Minus tax-free amount: 30,000 PLN annually

Second threshold (above 120,000 PLN annual income):

32% tax rate on income above 120,000 PLN (the 12% still applies to the first 120,000 PLN).

Several alternatives to standard PIT for entrepreneurs and certain situations:

1. Lump-sum tax:

For self-employed/sole proprietors
- Fixed percentage of revenue (not profit) based on business type, e.g. 17% for most professional services (IT, consulting, etc.)
No deduction of costs - you pay tax on gross revenue

2. Linear flat tax rate - 19%:

Flat 19% rate on all income regardless of amount
No tax-free amount
Can deduct business costs
Used by higher earners to avoid 32% rate

In 2022, revenues from the levy reached PLN 2.8 billion (approx. EUR 640 million). Data published for 2025 show PLN 1.9 billion (approx. EUR 440 million). Revenues from this source have therefore fallen by nearly PLN 0.9 billion (approx. EUR 200 million), or 30%, over three years. This is not a one-off effect, which suggests that optimization towards lower tax burdens is still ongoing. Relative to GDP, which grew over the same period, the comparison is even more striking. In 2022, revenues from the levy amounted to 0.1% of GDP, whereas today it is 0.05% of GDP – in other words, half as much.

…and an alternative reality

It should be emphasized that the solidarity levy would not have generated significant revenues even without the mass exodus toward lump-sum taxation. Below I present hypothetical amounts assuming that revenues from the levy had remained at the 2022 ratio to GDP. One can estimate that the shortfall amounts to approximately PLN 1.6 billion (approx. EUR 370 million) in 2025, while the cumulative gap reaches PLN 3.7 billion (approx. EUR 850 million). In the context of the state budget, this is not an eye-watering sum, but it is not negligible either.

Redistribution through inaction

Against the backdrop of a high fiscal deficit and mounting needs related to defense, demographic transition, and healthcare, it is paradoxical that the necessary – in my view – increase in tax revenues affects different taxpayer groups so unevenly.

Since 2023, revenues from the progressive tax scale have increased by nearly 70%, those from lump-sum taxation by 35%, while revenues from the flat tax and the solidarity levy have declined. In the case of the lump sum and flat tax regimes, I also present the combined dynamics of revenues for 2023–2025, given the possibility of switching between tax regimes.

What is the main reason for such unequal treatment of taxpayers? I would tentatively describe it as inertial redistribution, silent redistribution, or simply redistribution by non-decision. For policymakers, it is far more convenient to avoid politically difficult choices and instead rely on the built-in features of the system, such as frozen tax brackets in the progressive scale. The fact that this generates consequences in the form of “silent redistribution” is better left unspoken. Counteracting it would require taking action.

And how did the Ministry of Finance explain its incorrect forecast of solidarity levy revenues this year?

“Lower revenues from this source result from taxpayers generating lower incomes that constitute the basis for calculating the solidarity levy,” the Ministry of Finance stated.