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Govʼt to crack down on small business tax abusers

The government will modify rules governing the Itemised Tax for Small Businesses (KATA) from next year to prevent abuse by unscrupulous taxpayers, Gergely Gulyás, the head of the Prime Ministerʼs Office, said at a weekly press briefing yesterday, according to a report by state news wire MTI.

From next year, the government wants to slap a 40% tax on KATA income over HUF 3 million, if the KATA taxpayer is invoicing a single company, Gulyás said. The change will be included in a bill related to next yearʼs budget, he added.

KATA taxpayers who earn up to HUF 12 mln a year may pay a flat monthly HUF 50,000 instead of corporate or payroll tax.

The Hungarian Chamber of Industry and Commerce (MKIK) has long pressed for changes to put a squeeze on companies that abuse KATA.

The number of KATA taxpayers who were previously on another companyʼs payroll has risen sharply since the tax was introduced in 2013, suggesting that some companies are moving employees off payroll and paying them as "independent contractors" to avoid taxes on labor. 

State secretary for tax affairs Norbert Izer noted in a statement sent to MTI on Thursday said that the percentage of KATA taxpayers who were formerly employed by companies had risen from just 3% in 2013 to 40% by 2019.

There are about 377,000 KATA taxpayers.

Finance Ministry staff have calculated, based on data provision requirements, that the biggest 20 "KATA employers" have contracts with 4,700 KATA taxpayers, paying them HUF 32 bln annually, Izer said.

He added that the proposed changes would not affect some 300,000 KATA taxpayers who use the tax scheme appropriately.

Annual revenue from KATA is targeted at HUF 197.4 bln in the 2021 budget bill.