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Government submits wide raft of tax changes

A bill submitted by the government to Parliament late Tuesday would raise the revenue threshold for the Small Business Tax (KIVA) and phase out the Simplified Business Tax (EVA).  The bill was among a plethora submitted during the day, affecting real estate investment trusts (REITs), late payments, bank transfers and other areas.  

The bill affecting KIVA would raise the annual revenue threshold for companies eligible to pay corporate tax within the KIVA framework from HUF 500 million to HUF 1 billion, state news wire MTI reported. It would also allow approved KIVA companies to continue paying under the regime until their annual revenue reaches HUF 3 bln, rather than the HUF 1 bln limit at present.

The tax rate on KIVA companies is 13%, well over the 9% corporate tax rate, but KIVA companies enjoy a number of exemptions.

The bill would also allow companies to apply to pay the EVA tax for one last year, 2019, after which the tax will be phased out. EVA companies pay a 37% rate on turnover.

Next year, the government targets revenues of HUF 49.8 bln from KIVA, 83% over the target for 2018. Revenue from EVA is set to fall by 35% to HUF 45.4 bln.

REIT rules eased to aid investor confidence

Another tax bill submitted to Parliament late Tuesday would fine-tune the regulation of SZITs, the local equivalent of real estate investment trusts (REITs), supporting the establishment of more such entities.

One of the aims of the bill is to ensure that REITs are indeed solely engaged in the activity of real estate investment and that their balance sheets show only such assets necessary for the development and operation of real estate. By keeping REITsʼ activities within a strict framework, the proposed legislation would "raise investor confidence in [REITs]" and "prevent the conduct of business activities with greater risk," MTI quoted the billʼs authors as saying.

REITs are exempt from corporate tax and local business tax but must pay shareholders 90% of profits as dividends. A number of REITs have been established in Hungary recently, following favorable changes to the regulatory environment.

Higher penalty for late tax payment

Among other tax-related draft changes submitted by the government Tuesday is a bill that would more than double the penalties charged for late payment of taxes and fees, reported MTI.

The bill would raise the benchmark for late payment penalties from double the central bank base rate, or 1.80% at present, to five percentage points over the base rate, or 5.90%. The change would take effect from the start of next year.   

"The change aims to end the present condition in which the tax authority and the state are the cheapest lenders," the billʼs authors were cited as saying.

Meanwhile, another tax bill submitted by the government would exempt retail bank transfers of up to HUF 20,000 from the duty on financial transactions.  The change aims to "strengthen electronic payments and reduce the use of cash at the same time," MTI reported.

At present, the financial transactions duty makes it more costly for households to pay their bills with a bank transfer than to queue up at the post office and pay by postal check, the news agency noted.

Tax bills affect pálinka, unhealthy foods

Another submitted tax bill would eliminate an exemption from the public health tax for fruit distillates, such as pálinka, the traditional Hungarian spirit, and for herbal liqueur.  The change seeks to "end a legal dispute with the European Commission [...] avoiding a situation of legal uncertainty, bad for both taxpayers and the tax authority, that could drag on for years," the billʼs authors said.   

In May the EC stepped up an infringement procedure against Hungary over the exemption, originally launched in April 2016, arguing that the practice is protectionist because such products are mostly distilled domestically.

In other changes outlined by Minister of Finance Mihály Varga on Tuesday, another bill would reduce the VAT rate on heat-treated UHT and ESL milk from 27% to 5%, a change that would save families HUF 20 bln, according to the minister.

The change follows earlier cuts in the VAT rates on poultry, pork, fish, eggs and fresh milk to 5%.

At the same time, the bill would raise the public health product tax on unhealthy foods by 20% on average, Varga added.