Cash PIT: will it solve the problems of Polish entrepreneurs? 

Cash PIT - the details are yet to be determined

The cash PIT is supposed to solve the current problems of entrepreneurs arising from the need to pay tax even if the payment from the contractor has not been received. What matters now is the moment when revenue arises, which is deemed to be the issuance of an invoice, the delivery of goods and the performance of a service, regardless of whether the entrepreneur has received payment or not.

The cash-based PIT assumes that the entrepreneur will pay income tax only upon receipt of funds from a paid invoice, and not once the invoice has been issued. It should be recalled that a similar solution - the cash method in VAT - is currently available to certain VAT taxpayers on a voluntary basis. Experts point out that the cash-based PIT should function in a similar way.

How exactly is the new solution to be designed? What will be the conditions for using cash PIT? For the time being, it is not known exactly how the cash PIT will function, we have to wait for the draft regulations. However, the very announcement of the change is good news for Polish entrepreneurs. 

Bad debt relief insufficient?

Although in Polish tax legislation there is a solution known as the so-called 'bad debt relief' (the possibility of adjusting revenue if payment is not made for 90 days, counting from the due date indicated on the invoice, to reduce the tax base by the amount of these receivables), it is not always possible for an entrepreneur to take advantage of it.

According to the explanations of the National Tax Information Office (KIS), a person subject to PIT may take advantage of the bad debt relief if the debtor, as at the last day of the month preceding the month in which the tax return was submitted, was not in the course of restructuring, bankruptcy or liquidation proceedings. 

Payment backlogs a major problem  

As the results of the survey 'Payment etiquette of entrepreneurs', conducted by TGM Research on behalf of Kaczmarski Inkasso, show, 3 per cent of those surveyed never pay their invoices on time and, when delaying payment, only one-third always notify the counterparty.

Moreover, according to National Debt Register (KRD) data, payment backlogs represent a serious problem for Polish entrepreneurs. At the end of May 2023, more than 263 thousand companies were listed in the National Debt Register. 61.5 per cent, i.e. 162 thousand, were sole proprietorships. The number of indebted commercial law companies was not much less, 101 thousand.

Payment backlogs constitute, therefore, worryingly, a fairly common phenomenon in Polish reality. Payment backlogs, meanwhile, pose a serious financial threat to companies, which may themselves have problems maintaining liquidity because of them.

So, will cash PIT solve companies' current problems? It can certainly help. However, before this can happen, an amendment to the Personal Income Tax Act will be required and taxpayers themselves will have to adapt their current accounting and financial systems to the new solution. 

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