Local Government Organization and Finance: Poland
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T A B L E 9 . 6 Shares of Local Governments in Revenues from Personal and Corporate Income Taxes (percent) Personal income tax Level of government
Municipality County Region
Corporate income tax
1999–2003
Since 2004
1999–2003
Since 2004
27.6 1.0 1.5
39.34 10.25 1.60
5.0 0 0.5
6.71 1.40 15.90
Source: Author’s calculations based on financial reports of local governments.
A few features of the tax-sharing system are worth stressing. These features distinguish it from tax-sharing systems in several other transition countries: There is no territorial redistribution mechanism; that is, shares feed the budgets of local governments on whose territory the tax has been collected. A horizontal redistribution mechanism was in place for allocating personal income tax shares at the beginning of the 1990s, but it was liquidated in 1998.9 Unlike in some other countries in Central and Eastern Europe, the personal income tax is residence based (that is, it goes not to the jurisdiction in which one is employed but to the one in which one lives). It is paid by the vast majority of the adult population, regardless of whether they are paid workers, pensioners, or self-employed. Private farmers constitute the only large group that is exempt from personal income tax. The share that each tier of local government gets is decided in the Law on Local Government Revenues. Shares have been relatively stable for several years and are not subject to decisions made under the annual budget law. In theory, the corporate income tax is a poor candidate for local government revenue, because it is often difficult to determine which authority is entitled to the yield exacted from each taxpayer.10 Many companies have branches in various regions, or their headquarters may be located in a different jurisdiction than that in which goods or services are actually produced. Hence, when an enterprise has activity in many localities, revenue from corporate income tax is shared among those localities in a way that is proportionate to the number of people employed in each jurisdiction.
