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Tax policy 2014: No dramatic changes

Banking

From the Budapest Business Journal print edition: The 2014 package aims to support families and businesses, fight against the black economy and simplify the tax system, and tax consultants agree that the amendments, which were approved by parliament on November 18, contain no dramatic changes unlike those of the previous few years. 

As long as Hungary’s economic policy remains unchanged, its tax policy will not change either, said deputy state secretary for tax affairs Zoltán Pankucsi at a tax conference organized by KPMG in December. In 2014 the tax system will be stabilized: there will be no room for tax cuts, but tax increases are not necessary either said Pakuncsi, promising that taxpayers will not see new taxes or increased rates. The government’s main goal is to operate the current tax system in a more effective way. The state secretary added that he sees improving tax morale in Hungary. 

The 2014 package aims to support families and small- and medium-sized enterprises as well as to whiten the economy and simplify the tax system to streamline administrative processes. According to Pakuncsi, the government expects the measures to save 260,000 households approximately HUF 53-54 billion. 

Pankucsi stressed that the fight against the black economy and tax evasion is also intensifying at an international level. Switzerland and Hungary signed a double taxation agreement in September, replacing the previous outdated one concluded in 1981. The new agreement contains provisions on the exchange of information in accordance with current international standards. 

Experimenting with KATA
The government overestimated the number of companies that would switch over to two new taxes for smaller businesses, known by their Hungarian acronyms KIVA and KATA. In order to make it more attractive, lawmakers have decided to experiment with KATA, the itemized tax for small taxpayers, said Pakuncsi. The tax accounted for a monthly HUF 50,000 for taxpayers whose business is their main source of income and HUF 25,000 for those for whom it is not.

According to the new rules, taxpayers may opt to pay a monthly HUF 75,000. In exchange, their social security benefit base will be higher, thus making a direct link between the amount of taxes paid and the services received for it. 

Sole proprietorships and micro businesses with an annual revenue of up to HUF 6 million can opt to pay KATA. Revenue over HUF 6 million is taxed at a rate of 40%. 

Summary of 2014 tax policy
Summarization of the national tax policy for 2014 follows, with significant changes listed in four general categories.

Household support
• extended family tax allowances through making deductions possible against the 7% health and the 10% pension contribution rather than just against the 16% personal income tax

• more favorable rules on duties

• new exemptions from social security charges

• release the interest on any kind of loans provided tax free without tax liability on the financial institution’s side

• a 20% tax allowance on pension insurance

Business support
• extension of the social contribution tax allowance for companies operating in free enterprise zones to encourage investments in less developed regions

• the tax allowance available to SMEs related to the interest paid on investment loans received after 1 January 2014 will be up to 60%

• extended R&D-related allowances to encourage foreign firms to transfer R&D activities to Hungary

• full-time small taxpayers may choose to pay a higher itemized tax (kata) of HUF 75,000 per month instead of the standard HUF 50,000 per month

Simplifications to extant tax law
• costs backed-up by a receipt for restaurant services covered by a debit or credit card would be acknowledged for corporate income tax purposes

• simpler rules related to self-revision

• simpler vehicle registration

• the difference deriving from exchange rate fluctuations between the day of the top-up payment and the last day of the company’s financial year would not be included in the base of the default penalty calculation 

Countermeasures against black economy
• extended period of reverse taxation introduced for agricultural products

• 5% VAT on live, whole and half hogs

• during a tax investigation, the tax authority has the right to audit any software and IT system used for bookkeeping or processing receipts or documents 

• the sale of condensed hydrocarbon and lubricant oils in quantities above 5 kilograms and sold in bottles will be bound to an excise permit

• possibility of issuing receipts electronically

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