Audit no. P/24/075/LLO
Tax revenue represents the biggest part of the state budget revenue. In the period covered by the NIK audit (2019–2023), the share of tax revenue in the budget revenue ranged from 87.7% to 92.8% of the planned revenue and it reached approx. 90% of the executed revenue. As for tax revenue of the state budget the PIT played a significant role and it made up on average 15.1% of the planned revenue and 15.2% (on average) of the executed revenue.
PIT deductions and exemptions - reduced budget revenue
The PIT taxpayers often use tax deductions and exemptions in their tax declarations, which helps them reduce the tax amount. In 2019–2023, the tax due on taxable income went up from PLN 79 billion to PLN 87.7 billion. Income deductions (excluding deductions of social security contributions and deductions for eligible costs) in the audited period increased from PLN 8.1 billion to PLN 12.5 billion, and tax deductions (excluding deductions of health insurance contributions) declined from PLN 6 billion to PLN 4.6 billion.
The impact of PIT deductions and exemptions on the total tax due was significant. Therefore, it became necessary to check if the National Revenue Administration (from Polish: KAS) units properly verify the legitimacy of using those tax preferences by taxpayers. The audit was undertaken at NIK’s own initiative and preceded by in-depth analyses. Due to a large number of PIT deductions and exemptions provided in the law, the audit covered only selected ones.
Key audit findings
The NIK audit showed that, despite irregularities in the risk analysis area, the verification of taxpayers using selected PIT deductions and exemptions was adequate and reliable. The analytical, forecast and research activity as well as risk analysis in terms of personal income tax related to using selected PIT deductions and exemptions was carried out under the Analytical Process Management Policy. The principles of splitting responsibilities specified in this document were not consistent with the National Revenue Administration Act.
NIK found irregularities in the analytical activity of KAS. The risk analyses were unreliable as they did not use not all the data available for the National Revenue Administration. As a result the risk assessment was underestimated. Only the analyses conducted in 2024 using full data led to an increase in the risk level from low to medium in some areas. Additionally, the risk analyses related to individuals who did not run business activity were based only on data from tax audits. That was incorrect because the tax audits usually did not cover this category of taxpayers.
By the end of the audit, the Minister of Finance did not estimate the PIT gap. As a consequence, he did not have the knowledge about the level of state budget losses in PIT revenue, incurred with regard to taxpayers misusing PIT deductions and exemptions.
The Minister of Finance and the Head of the National Revenue Administration properly and reliably supervised tax administration chambers and tax offices. NIK’s only objections were related to delayed response of the Head of the National Revenue Administration to systematically declining number of verification activities with regard to taxpayers using PIT deductions and exemptions while the number of taxpayers using those tax allowances remained unchanged or even increased.
In most cases the audited tax office heads properly conducted verification activities using PIT deductions and exemptions selected for the audit. As a consequence, they led to an increase in the PIT liability for 2019–2023 by PLN 2.6 million.
Recommendations
To the Minister of Finance to:
- develop effective mechanisms enabling reliable estimation of the actual value and structure of the PIT gap.
To the Head of the National Revenue Administration to:
- add a clause to the Analytical Process Management Policy in KAS obliging heads of tax administration chambers to conduct analytical, forecast and research activity related to phenomena occurring in the area of their competence and risk analysis.
De lege ferenda proposal to the Minister of Finance to:
- take efforts aimed at changing the National Revenue Administration Act, involving detailed specification of the scope of analytical tasks carried out by the heads of the tax administration chambers by tasking them with analytical, forecast and research activity related to phenomena occurring in the area of their competence and risk analysis.
