The dynamically changing tax regulations in recent years have significantly impacted the fulfillment of tax obligations in Polish enterprises. Poland has the second most complex tax system according to the Tax Complexity Index, which covers 64 countries. According to the European Parliament’s February 2023 report, “Overview on the tax compliance costs faced by European enterprises – with a focus on SMEs,” entrepreneurs in Poland spend an average of 334 hours annually on fulfilling tax obligations, placing Poland second in Europe in terms of hours spent, just after Bulgaria with 441 hours. This is highlighted in the report “Taxes under scrutiny: How to navigate the maze of complex tax regulations?” prepared by PwC Poland.
The average costs associated with fulfilling CIT tax obligations in Poland amount to 2.4% of turnover, one of the highest in the EU – only Cyprus has higher costs at 2.6%. An analysis of the Polish tax system compared to other countries in Europe and worldwide indicates an overly high level of complexity. This directly translates to difficulties in fulfilling tax obligations, adapting to new regulations, and numerous interpretative uncertainties.
“To improve the efficiency and transparency of the tax system, it is worth looking at solutions adopted in countries with more transparent systems, such as Estonia, known for its simplified tax approach. Key steps include using new technologies, such as artificial intelligence, to automate and streamline tax processes, continuous tax consultations with entrepreneurs and advisors, and publishing clear and practical guidelines. Simplifying regulations and extending the vacatio legis period could significantly ease business operations and reduce the risk of errors, while ensuring appropriate budgetary revenues. Systematic assessment of the impact of tax regulations and providing taxpayers with understandable instructions are crucial for improving the functioning of the tax system in Poland,” says Tomasz Kassel, Managing Partner of the Tax, Legal, and People department at PwC Poland.
A study conducted by the World Bank, cited by the European Parliament in its report, indicates a significant correlation between the time required to fulfill tax obligations and the complexity of tax regulations. Estonia, with its very simplified tax system, is a well-known example of a country where both legislation and tax reporting rules are clear and taxpayer-friendly, with the average time spent on fulfilling tax obligations not exceeding 50 hours annually. In the Tax Complexity Index for 2022, prepared by research teams from universities in Paderborn and Munich, Poland ranks second in terms of the complexity of its tax system (the study covered 64 countries). Previously mentioned countries like Denmark ranked 40th, France 30th, and Germany 31st.
The index’s categories include the complexity of tax regulations, considering 15 variables such as tax rate, depreciation, minimum tax, capital gains, dividends, and transfer pricing (in this category, Poland has the third most complex tax regulations, compared to Denmark – 36th, France – 18th, Germany – 21st). Another category is the complexity of the tax system, comprising 5 variables such as support, payment and filing, and audits (Poland has the sixth most complex tax system, compared to Denmark – 41st, France – 42nd, Germany – 32nd). According to the ranking, the least complex tax systems are in Uruguay (1st), Estonia (2nd), and Switzerland (3rd), while the most complex are in Peru (64th), Poland (63rd), and Israel (62nd).
“The high costs of fulfilling tax obligations in Poland result from, among other things, the time-consuming nature of the tasks performed. In practice, companies incur costs related to employee salaries and overtime, recruiting new employees, acquiring and maintaining appropriate IT tools, providing access to training and knowledge bases, and using external tax advisory support,” says Mikołaj Woźniak, Partner at PwC Poland, Tax, Legal, and People department.
Several solutions could lead to the simplification of the tax system. Systematic evaluation of tax regulations: Conducting continuous verification of tax regulations to assess their effectiveness, considering the usefulness of data collected by tax authorities and their impact on state budget revenues. The evaluation should lead to concrete actions, including changes or repeal of selected regulations. Continuous tax consultations: Regular meetings with taxpayers, tax advisors, and other stakeholders to identify areas for improvements and simplifications in the tax system. Extending the vacatio legis period: Giving taxpayers more time to prepare for addressing new tax obligations. Publishing guidelines and explanations: Providing taxpayers with practical and understandable instructions and explanations to support them in correctly fulfilling tax obligations.
Given the dynamic changes in tax laws, the variety of emerging regulations and explanations, and the introduction of new legislative solutions at the EU level, tax law in Poland remains in a constant state of evolution. Therefore, it is worth seeking inspiration from countries with more taxpayer-friendly solutions to improve the efficiency and transparency of the tax system.
