Digitalization of the Hungarian Tax System Progressing Unhindered

Analysis

Károly Radnai, managing partner of Andersen Adótanácsadó Zrt.

In the past decade or so, the Hungarian tax system has undergone a massive change. A critical aspect of this is the quick digitalization of the system, which has fundamentally transformed the process of filing tax returns and undertaking tax audits.

A few years ago, we reached the point in Hungary where practically all tax returns must or could be filed electronically instead of on paper. It is considered a significant achievement, even internationally, that, based on the data available, the Hungarian tax authority now prepares a draft personal income tax return for everyone, which the taxpayer only has to accept or supplement as needed. If the digitalization trend is not broken, the tax return filing process is expected to be transformed radically in respect of all tax types within 10 years.

Developments aimed at connecting the various economic IT systems, such as EKÁER (the Electronic Goods Control System for Road Transport), online cash registers, or online billing data services, all represented significant steps in the process of digitalization. They also contributed to whitening the Hungarian economy to a considerable degree.

The tax authority can now obtain information from sources other than just tax returns, which significantly improves the efficiency of tax audits. Itis important to note that, in terms ofservices, these pieces of information enable the tax authority to prepare draft tax returns on behalf of taxpayers.

The transformation of the tax return filing and data collection process has fundamentally transformed tax audit methods. The established practice used to be that staff from the tax authority would primarily visit high-performing taxpayers for audit purposes, where the ratio of the investment in work to the tax shortfall expected to be uncovered was considered acceptable. These days, there are far fewer large-scale operations of this kind and far more so-called targeted audits. This is because the tax authority primarily works from online data, so that action can be taken much sooner in the case of discrepancies or suspected tax fraud.

Vast Data Resources

Thanks to digitalization and IT developments, there is a vast data resource at NAV’s disposal. This massive sea of data contains inherent exciting correlations from the aspect of tax audits, which can be uncovered through tried and tested technologies. It is possible, forexample, to perform the time-consuming analytical work of humans using self-learning, self-developing algorithms, which further enhances theefficiency and speed of tax audits.

The Hungarian tax authority relies on the analysis of this wealth of assets to an increasing degree. An Artificial Intelligence Group has been set up within the organization, and one of its main tasks is identifying tax irregularities.

The bill preparing the upcoming implementation of e-receipts formed part of the fall tax law package submitted mid-October. According to the official information received, paper-free receipt issuance will mean less administration, more straightforward usage, and reduced costs for entrepreneurs. Although the detailed rules are not yet known, theimplementation of e-receipts may beanother important milestone in the digitalization of the Hungarian tax system.

The launching of the e-VAT system will be of similar significance. Theessence of the globally unique development is that the tax authority could compile companies’ VAT returns based on the available data. Originally planned for 2021, the launch has been postponed a few times, most recently in November last year. Although the precise date of implementation is not yet known, NAV has again recently requested the opinion of users on theplan to connect bookkeeping programs and e-VAT tax returns.

This article was first published in the Budapest Business Journal print issue of November 18, 2022.

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