CHANGES IN TAXATION SYSTEM AND THE FINANCIAL SITUATION OF LOCAL AUTHORITIES IN POLAND DURING THE PERIOD

Transcription

1 CHANGES IN TAXATION SYSTEM AND THE FINANCIAL SITUATION OF LOCAL AUTHORITIES IN POLAND DURING THE PERIOD Arkadiusz Babczuk, Marian Kachniarz INTRODUCTION An important source of income to the Polish local authorities of all levels is income from their share in nation-wide taxes. With the lowest level authorities (gmina), a very important source of income is the inflows from local taxes and charges. Therefore, this study assesses the impact of changes in the structure of taxes and tax-like charges on the financial position of local authorities in Poland. The discussion is divided into three parts. The first one describes apportioning of the personal and corporate income tax as a source of income for local authorities. The middle part describes a method to estimate the loss of income suffered by the local authorities as a result of changes in the structure of personal income tax collected on general principles. The final part presents an estimate of such a loss of local authorities income. 1 APPORTIONING OF THE PERSONAL INCOME TAX AS A SOURCE OF INCOME FOR THE LOCAL AUTHORITIES IN POLAND During the years , the local authorities had their share in the revenues from personal income tax: levied on general principles, i.e. according to the tax scale referred to in Article 27 of the Personal Income Tax Law of 26 July 1991 (i.e. Dz. U. [Journal of Laws] of 2012, item 361) levied on income from non-agricultural business activities at the rate of 19%. During the period in question, the local authorities of various levels were allocated their respective shares in the revenues from personal income tax (Table 1). Under Article 5(2) the Law on Local Authorities Income of 13 November 2003 (i.e. of 2010, No. 80, item 526 as subsequently amended) (hereinafter - LLAI), a district s share in the revenues from personal income tax paid by the taxpayers resident within the district is 10.25%. The only exception was 2004 when, under Article 90(2) of the LLAI, the districts share in the proceeds from their residents PIT was temporarily reduced to 8.42%. Additionally, Article 6(2) of the LLAI provides for a province s share in the revenues from personal income tax paid by the taxpayers resident within the province, and this share was rated at 1.60% during the period in question. In contrast, the portion of the residents PIT allocated to the lowest level of local authorities (gmina) varied from year to year. A gmina s share in the revenues from personal income tax paid by the taxpayers resident within the gmina is set under Article 4(2) of the LLAI at 39.34%, subject however to the provisions of Article 89 of the LLAI. Section 1 of this Article provides that a gmina s share in the revenues from residents PIT shall be decreased by the number of percentage points calculated as a product of 3.81 pp and an index calculated for the entire country by the method set forth in Article 89(2) of the LLAI. This index is determined by dividing the number of inhabitants admitted into residential and nursing homes before 1 January 2004, the roll being taken as at 30 June of the base year, by the number of inhabitants admitted before 1 January 2004, the roll being taken as at 31 December As a result, in 2004 the gmina authorities received 35.72% of the total revenues from personal income tax. In the following year, their share fell to 35.61%. In subsequent years, the portion of PIT revenues allocated to gminas grew steadily, to reach 37.42% in With all the levels of local authorities taken together, during the analyzed period the share of local authorities in the proceeds from personal income tax rose from 45.74% in 2004 to 49.27% in It should be noted that within the meaning of Article 2(5) of the LLAI, revenues from personal income tax are tax payments received less tax refunds made. This means that the introduction of any new PIT relief affects the financial condition of local authorities only in the following year. This is so because tax reliefs affect the amount of tax due as determined in the settlement of annual PIT returns, and thus the potential payable amount of refunds of advances overpaid by the PIT payers.

2 The mechanism of apportioning the revenues from personal income tax to the local authorities in Poland is also important here. Pursuant to Article 11(2) of the LLAI, the revenues are transferred from the current account of the national budget to the budgetary accounts of the relevant local authorities by the 10th day of the month following the month in which the tax was paid into the account of the local tax office. Since 2008, the only exception are the sums payable to the local authorities for December. Pursuant to Article 11(3) of the LLAI, the sums apportioned as the local authorities income from the personal income tax for December are transferred from the current account of the national budget to the budgetary accounts of the relevant local authorities under the following principles: by 20 th December of each financial year, the local authorities receive transfers of an advance, amounting to 80% of the amount due for November of the same year; by 10 th January of the following financial year, the local authorities receive transfers of the difference between their actual share in the revenues from personal income tax paid by the taxpayers to the local tax offices during December and the advance received by the local authorities in December. This mechanism allows the local authorities to receive a large portion of their income due for December already during December and not as late as in January of the following year. In the years , a share in the revenues from personal income tax made a significant source of income of the Polish local authorities (Table 2). For this reason, any structural changes to the PIT (rates, brackets, reliefs and/or exemptions) could have a significant impact on the financial position of local authorities, a fact that should be taken into account with any legislative initiatives in this regard. During the period in question, income from this source played the biggest role in the financial management of towns endowed with district rights. PIT allocations made between 24.38% of their total income (in 2010) and 28.17% in With gminas other than towns endowed with district rights, income from personal income tax made between 13.56% of their total income (in 2004) to 17.11% in District authorities made from PIT between 10.33% of their total income (in 2004) and 16.51% in With provinces, income from personal income tax made between 4.55% of their total income (in 2009) to 8.47% in All the levels of local authorities saw a significant decline in the significance of income received from their shares in PIT revenues during the period. In subsequent years, the trend either got reversed (for gminas, districts and provinces) or slowed down (for towns with district rights). During the entire period in question, the structure of personal income tax collected on general principles, i.e. along the tax scale, varied significantly. The changes consisted in: introduction of, and then a significant increase in a tax-deductible child allowance, starting from 2007, replacing a three-bracket scale of personal income tax with a two-bracket one, with simultaneous introduction of new, lower tax rates since 2009 (Table 3). A tax-deductible child allowance to support child maintenance was introduced by the Law of 16th November 2006, amending the Personal Income Tax Law and certain other laws (Dz. U. [Journal of Laws] No. 217, item 1588). Pursuant to Article 27(f) sec. 2, added at the time to the Personal Income Tax Law of 26 July 1991, the taxpayer was granted an annual tax-deductible child allowance, amounting to PLN 120 per each dependent child. This allowance has been substantially increased by the Law of 5 September 2007 amending the Personal Income Tax Law ( Dz. U. [Journal of Laws] No. 191, item 1361). The Law provided for the allowance amount to be the product of the number of dependent children and twice the universal tax relief specified for the bottom bracket of tax scale. As a result of still another amendment to the Personal Income Tax Law, made pursuant to the Law of 6th November 2008 amending the Personal Income Tax Law, the Corporate Income Tax Law and certain other laws (Dz. U. [Journal of Laws] No. 209, item 1316), the tax-deductible child allowance per each calendar month of entitlement became calculated as one-sixth of the universal tax relief specified for the bottom bracket of tax scale. The latter amendment was introduced by the Law of 16th November 2006, amending the Personal Income Tax Law and certain other laws (Dz. U. [Journal of Laws] No. 217, item 1588). It came into force on 1 st January In 2006, personal incomes of up to PLN 37,024 were taxed at the rate of 19%. Incomes in excess of this limit, but not exceeding PLN 74,048, were taxed at the rate of 30%. The top tax rate of 40% was applied to incomes in excess of PLN 74,048. As shown in Table 3, in 2007 the tax bracket limits were reviewed to reach PLN 43,405 and 85,528 respectively. In the following year, the tax bracket review was abandoned. As already mentioned above, in 2009 the three-bracket scale of personal income tax was replaced with a two-bracket one. This operation essentially meant integration of the two lower tax

3 brackets into one. The tax bracket limit of PLN 85,528 remained unchanged in the years Incomes below the limit were taxed at the rate of 18% and all the higher incomes at 32%. The depth and nature of changes that took place during the period in question in the structure of personal income tax collected on general principles makes it necessary to estimate the financial consequences of these changes for the local authorities. 2. METHOD USED TO ESTIMATE THE LOSS OF INCOME SUFFERED BY THE LOCAL AUTHORITIES AS A RESULT OF CHANGES IN THE STRUCTURE OF PERSONAL INCOME TAX COLLECTED ON GENERAL PRINCIPLES In order to estimate the loss of income suffered by the local authorities as a result of changes in the structure of personal income tax collected on general principles, we: 1. analyzed the evolution of tax base (taxable incomes) within the period in question, 2. analyzed the value of tax-deductible child allowances awarded during the period in question, 3. adopted the necessary simplifying assumption of an unchanging structure of incomes before tax, remaining in line with the actual structure of taxpayers incomes during the year preceding the shift from three-bracket to two-bracket scale of taxation, i.e. 2008, 4. disregarded the impact on the local authorities revenues of other changes in tax reliefs applicable to the personal income tax paid at the general scale and of tax exemptions granted individually under the Taxation Code (i.e. (Dz. U. [Journal of Laws] of 2012, item 749 as subsequently amended), 5. estimated the impact of changes in the tax scale and rates of personal income tax by extrapolation; the first step was to identify the dynamics of taxable income; in the second step, using the springboard of the total amounts of both tax due and the tax-deductible child allowance for 2008 as well as the previously established dynamics of taxable income, we estimated the total amounts of both tax due and the tax-deductible child allowance for subsequent years; the third step was to estimate the impact of changes in the tax scale and rates of personal income tax by reducing the said total amounts by the actual accumulated deductions of child allowance, 6. estimated the size of loss of income suffered by the local authorities as a result of changes in the structure of personal income tax collected on general principles, the estimation being done in two variants: a. Variant 1, where the local authorities share in the personal income tax revenues remains at the level of the year preceding the shift from three-bracket to two-bracket scale, i.e. 2008, b. Variant 2, where the local authorities share in the personal income tax revenues was updated to the level actually existing in the years , 7. for simplicity, the loss of income was estimated only for gminas, districts and provinces, while towns with district rights were not considered a separate type of local authorities. The loss of income suffered by the towns with district rights is therefore included in the total amount of loss suffered by gminas and districts, as the towns with district rights receive both the gmina s and the district s share in personal income tax levied on general principles. It is worth noting that throughout the period in question similar levels were maintained for: the percentage of taxpayers paying personal income tax at the top rate, the share of gross incomes of the taxpayers paying personal income tax at the top rate in the total gross income of taxpayer population, and the percentage of tax amounts due from the taxpayers paying personal income tax at the top rate in the total PIT amounts due, which indicates the admissibility of the simplifying assumption we adopted. 3. ESTIMATED LOSS OF INCOME SUFFERED BY THE LOCAL AUTHORITIES AS A RESULT OF CHANGES IN THE STRUCTURE OF PERSONAL INCOME TAX COLLECTED ON GENERAL PRINCIPLES In the years , the total gross (i.e. before deductions) taxable income of the taxpayers who were taxed on general principles increased from PLN 435,819.9 million to PLN million. During this time, the taxable income as reduced by the deductible contributions to social insurance increased from PLN 389,600.5 million to PLN 645,346.7 million. However, from the point of view of the

4 present study, the most important is the evolution of total personal income taxable on general principles. During the period in question, it increased from PLN 385,296 million to PLN 641,069.6 million. In the years , following the two changes in the structure of personal income tax levied at the general tax scale described in the first chapter, the amount of total loss of tax payable increased from PLN 5,431.9 million to PLN 11,853.6 million (Table 3). The largest loss of revenue from personal income tax took place in 2010 and amounted to over PLN 13,946.1 million. The consequences of this tendency affected the local authorities to a large extent. In 2007, the estimated loss of local authorities income from their shares in the revenues from personal income tax slightly exceeded PLN 2,611.1 million. However, in the following year this figure climbed to PLN 2,921.4 million. The highest estimated loss of local authorities income from their shares in the revenues from personal income tax was seen in Depending on the estimation method used, it amounted to PLN 6,741.5 million (Variant 1) or PLN 6,804.3 million (Variant 2). Depending on the estimation method used, the local authorities share in the 2013 revenues from personal income tax levied on general principles decreased by PLN 5,730 million (Variant 1) or PLN 5,840.3 million (Variant 2). The estimated loss of income suffered by the local authorities as a result of changes in the structure of personal income tax varied depending on the authority level. In 2007, the gminas estimated loss of income amounted to PLN 1,967.4 million. In the following year this figure climbed to nearly PLN 2,205.3 million. In , the scale of gminas loss of income was much greater. The record loss of income occurred in 2010, when again depending on the estimation method used the gminas share in revenues from personal income tax decreased by the amount of PLN 5,088.9 million (Variant 1) or nearly PLN 5,151.7 million (Variant 2). The gminas share in the 2013 revenues from personal income tax decreased by another PLN 4,325.4 million to reach PLN 44,435.6 million. With districts, the 2007 loss of income amounted to nearly PLN million. In the following year, this figure went up to nearly PLN million. In the years , the scale of districts loss of income was much greater. The record loss of income occurred in 2010, when the districts share in revenues from personal income tax decreased by the amount of nearly PLN 1,429.5 million. The districts share in the 2013 revenues from personal income tax was lower than the potential one by PLN 1,215 million. As far as provinces are concerned, the 2007 decrease in their income amounted to PLN 86.9 million. In the following year, this figure went up to nearly PLN 96.7 million. In the years , the scale of provinces loss of income was much greater. The record loss of income occurred in 2010, when the provinces share in revenues from personal income tax decreased by the amount in excess of PLN million. The provinces share in the 2013 revenues from personal income tax was lower than the potential one by PLN million. CONCLUSIONS The adverse changes in the revenues of local authorities as presented in this study have not been compensated by granting them access to other, fiscally efficient sources of income. Neither were these changes accompanied by a reduction of the scope of their respective responsibilities. This might constitute a breach of the principle of adequacy of the local authorities revenues to the tasks imposed on them, as stipulated in Article 167(1) of the Constitution of the Republic of Poland, which stipulates that local authorities shall be assured public funds adequate for the performance of the duties assigned to them. In the future, the system of supplying the local authorities with revenues should operate in compliance with this rule.

5 Tab. 1: The local authorities share in the revenues from personal income tax levied on general principles and its significance for their financial situation during the period Specification The local authorities share in the revenues from personal income tax levied on general principles Gminas (lowest level) 35.72% 35.61% 35.95% 36.22% 36.49% 36.72% 36.94% 37.12% 37.26% 37.42% Districts 8.42% 10.25% 10.25% 10.25% 10.25% 10.25% 10.25% 10.25% 10.25% 10.25% Towns with district rights 44.14% 45.86% 46.20% 46.47% 46.74% 46.97% 47.19% 47.37% 47.51% 47.67% Provinces 1.60% 1.60% 1.60% 1.60% 1.60% 1.60% 1.60% 1.60% 1.60% 1.60% Local authorities in total 45.74% 47.46% 47.80% 48.07% 48.34% 48.57% 48.79% 48.97% 49.11% 49.27% Significance of the local authorities share in the revenues from personal income tax levied on general principles for their financial situation Gminas (lowest level) 13.56% 13.68% 14.25% 16.25% 17.11% 15.27% 13.94% 14.95% 15.40% 16.02% Districts 10.33% 13.11% 14.15% 16.23% 16.51% 13.77% 12.43% 13.30% 14.75% 15.22% Towns with district rights 24.55% 25.06% 25.39% 27.44% 28.17% 26.66% 24.38% 24.62% 23.52% 23.47% Provinces 7.57% 8.47% 7.26% 7.51% 7.46% 4.55% 6.25% 6.38% 6.59% 6.54% Source: Own work, 2014, based on: Report on the use of national budget between 1 January and 31 December 2004; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2005; Report on the use of national budget between 1 January and 31 December 2005; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2006; Report on the use of national budget between 1 January and 31 December 2006; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2007; Report on the use of national budget between 1 January and 31 December 2007; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2008; Report on the use of national budget between 1 January and 31 December 2008; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2009; Report on the use of national budget between 1 January and 31 December 2009; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2010; Report on the use of national budget between 1 January and 31 December 2010; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2011; Report on the use of national budget between 1 January and 31 December 2011; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2012; Report on the use of national budget between 1 January and 31 December 2012; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2013; Report on the use of national budget between 1 January and 31 December 2013; Information on the use of local authorities' budgets. Council of Ministers, Warsaw 2014.

6 Tab. 2: Taxation brackets of the personal income tax in the years Income brackets Bottom bracket Up to PLN 37,024 Up to PLN 43,405 Up to PLN 44,490 Middle bracket Up to PLN 85,528 Over PLN 37,024 up to PLN 74,048 Over PLN 43,405 up to PLN 85,528 Over PLN 44,490 up to PLN 85,528 Top bracket Over PLN 74,048 Over PLN 85,528 Over PLN 85,528 Over PLN 85,528 Source: Own work, based on: Information on the settlement of personal income tax for the year Ministry of Finance, Income Tax Department, Warsaw 2007; Information on the settlement of personal income tax for the year Ministry of Finance, Income Tax Department, Warsaw 2008; Information on the settlement of personal income tax for the year Ministry of Finance, Income Tax Department, Warsaw 2009; Information on the settlement of personal income tax for the year Ministry of Finance, Income Tax Department, Warsaw 2010; Information on the settlement of personal income tax for the year Ministry of Finance, Income Tax Department, Warsaw 2011; Information on the settlement of personal income tax for the year Ministry of Finance, Income Tax Department, Warsaw 2012; Information on the settlement of personal income tax for the year Ministry of Finance, Income Tax Department, Warsaw 2013; Information on the settlement of personal income tax for the year Ministry of Finance, Income Tax Department, Warsaw Tab. 3: The estimated loss of income suffered by the local authorities as a result of changes in the structure of personal income tax during the period [in PLN thousands]. Specification Total amount of the tax-deductible child allowance actually 6,043,55 5,431,984 5,633,012 5,684,317 5,740,118 5,698,504 5,529,539 deducted from personal income tax. 3 Loss of income resulting from the introduction of a new, twobracket scale of personal income - - 8,009,378 8,261,790 7,312,160 6,066,967 6,324,127 tax Total loss of income from personal income tax 5,431,984 6,043, ,642, ,946, ,052, ,765, ,853,66 6 Source: Own work, 2014 Tab. 4: The estimated loss of income suffered by the local authorities as a result of changes in the structure of personal income tax during the period, by authority level [in PLN thousands] Specification Gminas (lowest level) Variant 1 1,967,465 2,205,292 4,978,108 5,088,934 4,762,776 4,293,220 4,325,403 Variant 2 1,967,465 2,205,292 5,009,486 5,151,692 4,845,005 4,383,815 4,435,642 Districts ,464 1,398,345 1,429,476 1,337,858 1,205,961 1,215,001 Provinces , , , , , ,659 Local authorities in total (*) Variant 1 2,611,155 2,921,454 6,594,731 6,741,548 6,309,471 5,687,429 5,730,062 Variant 2 2,611,155 2,921,454 6,626,109 6,804,306 6,391,700 5,778,023 5,840,301 Source: Own work, 2014

7 BIBLIOGRAPHY [1]. Informacja dotycząca rozliczenia podatku dochodowego od osób fizycznych za 2006 rok [Information on the settlement of personal income tax for the year 2006], Ministry of Finance, Warsaw [2]. Informacja dotycząca rozliczenia podatku dochodowego od osób fizycznych za 2007 rok [Information on the settlement of personal income tax for the year 2007], Ministry of Finance, Warsaw [3]. Informacja dotycząca rozliczenia podatku dochodowego od osób fizycznych za 2008 rok [Information on the settlement of personal income tax for the year 2008], Ministry of Finance, Warsaw [4]. Informacja dotycząca rozliczenia podatku dochodowego od osób fizycznych za 2009 rok [Information on the settlement of personal income tax for the year 2009], Ministry of Finance, Warsaw [5]. Informacja dotycząca rozliczenia podatku dochodowego od osób fizycznych za 2010 rok [Information on the settlement of personal income tax for the year 2010], Ministry of Finance, Warsaw [6]. Informacja dotycząca rozliczenia podatku dochodowego od osób fizycznych za 2011 rok [Information on the settlement of personal income tax for the year 2011], Ministry of Finance, Warsaw [7]. Informacja dotycząca rozliczenia podatku dochodowego od osób fizycznych za 2012 rok Information on the settlement of personal income tax for the year Ministry of Finance, Warsaw [8]. Informacja dotycząca rozliczenia podatku dochodowego od osób fizycznych za 2013 rok [Information on the settlement of personal income tax for the year 2013], Ministry of Finance, Warsaw [9]. KORNBERGER-SOKOŁOWSKA, E., Realizacja zasady adekwatności w procesach decentralizacji finansów publicznych [Compliance with the adequacy principle in the process of public finances decentralization], Samorząd Terytorialny, 3, pp. 2-12, [10]. KORNBERGER-SOKOŁOWSKA, E., Zasada adekwatności w systemie finansów samorządu terytorialnego w Polsce [The adequacy principle in the system of financing the local authorities in Poland], Warszawa, [11]. MIEMIEC, W., Prawne gwarancje samodzielności finansowej gminy w zakresie dochodów publicznoprawnych [Legal guarantees of gmina s financial independence in the area of public revenue]. Warsaw [12]. Ustawa z dnia 26 lipca 1991 r. o podatku dochodowym od osób fizycznych (Dz.U j.t.) [Personal Income Tax Law of 26 July 1991 (consolidated text in: Dz. U. [Journal of Laws] of 2012, item 361)] [13]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2004 r. national budget between 1 January and 31 December 2004; Information on the use of local authorities' budgets], Council of Ministers, Warsaw [14]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2005 r. national budget between 1 January and 31 December 2005; Information on the use of local authorities' budgets], Council of Ministers, Warsaw [15]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2006 r. national budget between 1 January and 31 December 2006; Information on the use of local authorities' budgets], Council of Ministers, Warsaw [16]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2007 r. Informacja o wykonaniu budżetów jednostek samorządu terytorialnego Report on the use of national budget between 1 January and 31 December 2007; Information on the use of local authorities' budgets. Council of Ministers, Warsaw [17]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2008 r. national budget between 1 January and 31 December 2008; Information on the use of local authorities' budgets], Council of Ministers, Warsaw [18]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2009 r.

8 national budget between 1 January and 31 December 2009; Information on the use of local authorities' budgets], Council of Ministers, Warsaw [19]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2010 r. national budget between 1 January and 31 December Information on the use of local authorities' budgets], Council of Ministers, Warsaw [20]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2011 r. national budget between 1 January and 31 December 2011; Information on the use of local authorities' budgets], Council of Ministers, Warsaw [21]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2012 r. national budget between 1 January and 31 December 2012; Information on the use of local authorities' budgets], Council of Ministers, Warsaw [22]. Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2013 r. national budget between 1 January and 31 December 2013; Information on the use of local authorities' budgets], Council of Ministers, Warsaw Authors address: dr Arkadiusz Babczuk Wroclaw University of Economics, Faculty of Economics, Management and Tourism, Department of Finance and Accounting arkadiusz.babczuk@ue.wroc.pl prof. dr hab. Marian Kachniarz Wrocław University of Environmental and Life Sciences, Faculty of Environmental Engineering and Geodesy, Department of Land Management marian.kachniarz@up.wroc.pl

9 CHANGES IN TAXATION SYSTEM AND THE FINANCIAL SITUATION OF LOCAL AUTHORITIES IN POLAND DURING THE PERIOD Abstract This article aims is the analyze the impact of changes in the structure of taxes and tax-like charges on the financial position of local authorities in Poland. An important source of income to the Polish local authorities of all levels is income from their share in nation-wide taxes (Corporate Income Tax and Personal Income Tax). With the lowest level authorities (gmina), a very important source of income is the inflows from local taxes and charges. Therefore, this study assesses the impact of changes in the structure of taxes and tax-like charges on the financial position of local authorities in Poland. The adverse changes in the revenues of local authorities as presented in this study have not been compensated by granting them access to other, fiscally efficient sources of income. Neither were these changes accompanied by a reduction of the scope of their respective responsibilities. This might constitute a breach of the principle of adequacy of the local authorities revenues to the tasks imposed on them, as stipulated in Article 167(1) of the Constitution of the Republic of Poland, which stipulates that local authorities shall be assured public funds adequate for the performance of the duties assigned to them. In the future, the system of supplying the local authorities with revenues should operate in compliance with this rule. The discussion is divided into three parts. The first one describes apportioning of the personal income tax as a source of income for local authorities. The middle part describes a method to estimate the loss of income suffered by the local authorities as a result of changes in the structure of personal income tax collected on general principles. The final part presents an estimate of such a loss of local authorities income. Key words: local government, personal income tax JEL Classification: H 71, H 72, H 77