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Hungaryʼs VAT Gap second only to Austria in region

A new report by the European Commission (EC) reveals that Hungary is in second place in the CEE region in successfully collecting VAT, trailing only Austria, with its so-called VAT Gap standing at 13%, according to a press release sent to the Budapest Business Journal.

Gábor Farkas

The EC published its report entitled "Study and Reports on the VAT Gap in the EU-28 Member States" in September. The VAT Gap, acting as the focus of the report, refers to the difference between the total amount of VAT taxpayers should theoretically pay and how much the tax authorities actually collect, expressed as a percentage.

Hungaryʼs realization of a 9 percentage-point decrease in the investigated period since 2012 is a significant improvement, the second best in the region behind only Slovakiaʼs 11 percentage-point decrease, observed Gábor Farkas, director of PwC Hungaryʼs tax and legal advisory branch.

According to experts of the Big Four company, the vast improvement can be attributed to a multitude of factors, such as the introduction of the Electronic Public Road Trade Control System (EKÁER) in 2015.

"Considering the inflation politics in Hungary lately, the result also means a real increase in VAT income. According to some estimates, the VAT Gap may further move in a positive direction in 2017-2018, with a decrease to 10% possible," Farkas added.

"The positive turn can be explained by the efforts by the Hungarian tax authority to expand the duties of taxpayers in order to repress VAT fraud as much as possible," noted László Deák, partner of PwC Hungaryʼs tax and legal advisory branch. "The legislation introducing the domestic summary report in 2013 served this aim, as taxpayers had to include bills with over HUF 2 million worth of VAT on supplementary sheets of the VAT declaration in an itemized way."

Deák observed that duty also became progressively stricter, with the VAT limit for reporting decreasing to HUF 1 mln in 2015, and eventually HUF 100,000 on July 1, 2018.