András Tállai: The Hungarian Tax Office data set is unique in the region

English2021. jan. 18.Növekedé

The Hungarian government has spent 1,014 billion forints on epidemiological control and more than 3,700 billion on economy protection, András Tállai, state secretary of the Ministry of Finance told növekedé He also revealed that further measures are to be expected, which can be well targeted because of the large amount of data the Tax Office (NAV) has on domestic businesses, which is unique in our region. In the wage support program, which has been available since November, 11,000 companies have so far applied for 18 billion forints in support for 80,000 employees. In tourism, subsidies were claimed by 11,000 accommodation providers in the value of 15 billion forints. Regarding the tightening of the conditions of the KATA tax scheme, the state secretary explained that this form of taxation was not created for those who have more than 3 million forints in revenue from one single customer. He also said that further tax cuts are to be expected in the future.

2020 was the year of the coronavirus. There are sectors that barely had any revenue throughout the year. What is the biggest problem in the Hungarian economy now?

The first and second wave of the epidemic hit businesses differently; but market feedback, incoming data and analysis by the ministry all show that the hospitality, tourism and service sectors are the most exposed to the coronavirus crisis. Because of the disruption to global supply chains

the first wave of the virus resulted in a significant decline in industry, especially in the automotive industry, but it seems that this has been successfully avoided so far in the second wave.

What were the steps that provided vital support to these sectors?

In both the first and second wave of the coronavirus epidemic companies and sectors received considerable tax reliefs.

The measures taken in the spring helped about one million people keep their jobs or businesses. For example, the loan moratorium and wage subsidies provided important and quick help for businesses; and the easing of the tax regulations meant that both the public burden and the administrative tasks of businesses decreased.

Or the fact that taxes related to company reports (e.g. corporate tax) had to be paid only by 30 September left 200 billion forints with companies for an additional four months.

Government measures are also a great help in the second wave of the epidemic. This time, the focus is on those economic players and their employees who were hit the hardest by the restrictions. Businesses in the hospitality and leisure sectors are exempt from employer taxes from November to January 2021, and accommodation providers, tour operators and private bus companies have also been granted the same exemption until the end of January…

But were these measures sufficient?

The government has taken a lot of other important steps to support businesses in addition to the ones mentioned before. The wage subsidy scheme, which has been available since November, helps those working in the hospitality, tourism and service sectors; and

so far, 11 thousand employers applied for the subsidy for nearly 80 thousand employees, claiming a total of 18 billion forints in support.

In addition to the tax relief, accommodation providers are reimbursed by the state for 80 percent of their lost revenue calculated on the basis of advance bookings.

According to the Hungarian Tourism Agency, 928 thousand guest nights had been booked for November, which means almost 15 billion forints net for more than 11 thousand accommodation providers.

We can also mention exemption from the tourism development contribution and tourist tax during COVID, or the reduction of the tax on the Széchenyi Pihenő Card (SZÉP-kártya) by half to 15 percent and the doubling of the maximum transferrable amount.

The total amount of support provided to the tourism sector already exceeds 800 billion forints, and this amount only includes government measures taken so far in view of the coronavirus crisis.

Will new economy protection measures be needed in 2021, or the current steps (business tax, targeted subsidies) will be the last ones?

We are practically taking new measures on a weekly basis, and we are able to react extremely quickly to even the smallest changes in the economy.

This is possible because the online tools of the Tax Office (e.g. online cash registers and online invoices) provide an accurate and fast insight into the economic processes. None of our regional competitors have such an extensive set of data that covers all segments of the economy.

For example, wage subsidies or tax exemptions for the sectors most exposed to the coronavirus epidemic have been granted for three months now, but if the Covid situation and the incoming data justify it, the government is prepared to extend these measures for another three months.

What do you think about the view that the government could be more generous in mitigating the economic effects of Covid-19 control measures?

It is obvious that the current crisis management measures are very different from those taken by the Gyurcsány and Bajnai governments to manage the crisis in 2008-2009. The left-wing cabinet increased excise duty, complicated and raised personal income tax, cut the child care period of GYES from three to two years, reduced wages in the public sector, levied a general property tax and terminated the 13th month pay for pensioners.

In contrast, the Fidesz government has spent 1,014 billion forints so far on virus protection measures and more than 3,700 billion on economy protection, and restored the 13th month pension taken away by the left.

Why was it considered important to waive half of the local business tax?

The Hungarian Chamber of Commerce and Industry (MKIK) initiated the waiving of the local business tax (hipa) for one year. Businesses and tax experts also pointed out to the Finance Ministry that because of the cuts in central taxes, the proportion of the local business tax has become larger.

While the 9 percent corporate tax is the lowest in the European Union, the rate of the local business tax has not changed for two decades.

Due to the economic impact on municipalities, the government could not fully accept the MKIK proposal. However, Finance Ministry data also confirmed that micro and small enterprises need further tax reliefs, as these businesses are vulnerable in times of crisis regardless of which sector they are operating in.

Therefore, instead of waiving it altogether, the government decided on maximizing the tax to be levied by municipalities in 1 percent in the interest of local governments. However, this is a temporary measure effective only for one year, which is needed to help small businesses recover from the crisis.

Restricting the scope of beneficiaries to small businesses is the result of the best possible compromise, as all enterprises with more than 4 billion forints in revenue, and even company networks whose turnover exceeds 4 billion at group level, will continue to be subject to the maximum 2 percent tax rate.

On the other hand, the tightening of the KATA taxation rules at the time of the epidemic was widely disapproved, also by interest groups. Why was this step necessary right now, as it affects 400 thousand entrepreneurs?

From this year, KATA will become fairer, and the change will not apply to 80 percent of KATA taxpayers or more than 350,000 businesses at all, as their tax burdens will be exactly the same in 2021 as before.

The changes, which took effect on 1 January, are in line with the original intention of the legislation. KATA was introduced by the government in 2013 to help micro-enterprises, such as hairdressers, beauticians and taxi drivers, who typically offer services to the population. The new rule only applies to high-value transactions; from 2021, companies employing KATA taxpayers will be subject to a 40 percent tax, but only if the total value of invoices received from one KATA payer is over 3 million forints within one year.

High-value, possibly multi-million forint agreements create a completely different economic situation, which has to be addressed by the tax system differently.

A micro-entrepreneur serving tens or hundreds of customers a month cannot be compared to a larger KATA paying business that can issue invoices for a total of more than three million forints to one single customer this year.

At the same time, the government not only excludes transactions of more than 3 million forints from the rules that favour small taxpayers, but also curbs the recently widespread solution applied by certain companies that instead of hiring their workforce in the framework of regular employment, hire them as KATA paying contractors.

How does the Hungarian tax burden now compare to other EU countries?

Tax systems can be compared in many ways. In the past one month, for example, two types of comparisons have been published, according to which Hungary is globally in a good position regarding taxation. One comparison measured the tax burden, while the other one compared the tax environment.

Hungary came first in the competition of tax burden reductions, as here the reduction in the tax burden was the largest of the 37 OECD countries.

The record 1.7 percent reduction was achieved in 2019. According to the OECD Revenue Statistics published in early December, the tax burden as a percentage of GDP fell to 35.8 percent in 2019.

With regard to the tax burden, it is also worth considering that the impact of the series of tax cuts has been significantly mitigated by the whitening of the economy, which is a welcome process even if it worsens the rate of our GDP-proportionate tax burden at the same time.

In the other ranking, the so-called Tax Competitiveness Index, which was published in mid-December, measuring the tax environment of families and businesses as well as investments, Hungary ranked 14, outperforming economic giants like Germany, Great-Britain, Italy or the United States.

What do you think of the Hungarian tax burden now, is it appropriate or is it expected to change in the future?

It is no coincidence that year after year Hungary is at the forefront of tax reduction competitions, as taxes on labour, businesses and families have been decreasing steadily since 2010.

The 9% rate of the corporate tax is the lowest in the European Union, while the personal income tax rate of 15% is the third lowest. The reduction of the social contribution tax to be paid by employers also started in 2017; it was 27 percent in 2016 but currently it is only 15.5 percent.

The total tax burden on wages has fallen from 53.1 percent to 43.2 percent in ten years as a result of tax cuts, and it could go even lower in a few years.

If the conditions in the wage agreement are met, the social contribution tax may be reduced by a further four percentage points to 11.5 percent.

So tax cuts will continue, and even the pandemic cannot break this process, so this way we can keep our distinguished position in tax cut competitions in the years to come.

What do you expect from the Hungarian economy in 2021? What type of economic recovery do you expect?

According to several economic analysts, the economic downturn is now greater than it was in 1929, the first year of the so called Great Depression. Although it is hard to make a comparison after almost a hundred years even if we strictly consider the economic effects alone, we can point out two important differences.

The coronavirus crisis in 2020 hit a rapid, immediate blow to the entire world economy; and 2021, the second year of the current crisis will be already about recovery.

That is why it is important that we now provide the greatest possible help to businesses through subsidies and tax cuts.

The economy is now artificially constrained by the restrictive measures due to the epidemic, but our experience from the summer suggests that the easing of the restrictions can be followed by a relatively rapid recovery.

According to the preliminary calculations of the Finance Ministry, the performance of the economy may improve significantly after last year's decline, with a GDP growth of 3.5 percent this year and 5.4 percent in 2022.

What will be the biggest challenges in 2021?

2021 will be the year of protection against the coronavirus pandemic, in which both human lives and jobs must be protected. In my view, the international competition will intensify this year for investors, who will not only generate extra revenue for the treasury of each country with their taxes, but will also create jobs.

Hungary was one of the best investment destinations before the coronavirus crisis and it can remain so, but this will require further tax cuts and also stronger digitalisation, which could be an important tool in epidemic control, too.

In addition, the government has to ensure that the debt does not increase too much, as countries that are not careful enough now will find themselves in a more difficult position during the recovery period.