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Five ways to cut red tape

A new government package is set to slash state bureaucracy and simplify the tax system in order to help stimulate growth at small- and medium-sized enterprises. The government is hoping that companies will save some HUF 500 billion through the program.

Adding the cost of abstract items such as time is standard practice when calculating finances. Time is just like money: it is precious and something that most people are short of these days. When Symantec, an international IT security firm, recently calculated the value of global cybercrime, it included the dollar equivalent of the time lost from work due to cybercrime experiences. 

Like companies, the Hungarian government has also looked at time as something to which a price tag can be applied when creating its bureaucracy reduction program. According to its own calculations, changes implemented from next year will save enterprises HUF 500 billion and create 150,000 new jobs. The program covers five major areas, all related to bureaucracy and each with an expected value of savings assigned to it. The Budapest Business Journal looked at these areas and, with the help of expert witnesses, tried to ascertain whether the proposed measures will help cut costs and reduce red tape.

1. Making fine-levying procedures easier to understand, less annoying and easier to comply with

What the government says:

Up-to-date knowledge about the requirements of authorities and the legal consequences of non-compliance will reduce uncertainty and risk. Businesses will learn exactly what rules apply to them and what happens if they breach them. Proposed measures include levying fines that are proportionate to the violation and the size of the enterprise, and publishing resolutions to improve transparency. Also, companies have to be given access to the requirements (e.g. in an electronic form). By ensuring compliance, the government forecasts a 0.1%-0.2% increase in GDP over a period of four to five years.

BBJ comment:

Now this is a challenge! Clearly, no one likes to be fined, so once they are, the chances are that companies will find the process irritating regardless of any new measures. Enforcing the law and discouraging companies from finding loopholes will be just as difficult. The Hungarian Competition Authority (GVH) levied combined fines of HUF 10.4 billion in 2010, well over the HUF 5.83 billion total for 2009. It closed 132 procedures and started 123 procedures. Add to that enhanced scrutiny resulting from the government’s pledge to increase the rigor of tax collection, and the need for an overhaul becomes obvious.

Estimated savings for businesses: HUF 7 billion

 

2. Reducing the amount of data companies must report and harmonizing databases

What the government says:

The records of authorities today are barely harmonized and often overlap. To eliminate these overlaps, data provision should be mandatory but changes should be reported to only one body, saving both time and money. Initially, the databases of different bodies should be harmonized. Instead of businesses, the tax and customs office NAV would provide all the data required by social security (payroll taxes) based on monthly contribution declarations. This way, the various forms to claim child support (GYED), sick leave, etc. would no longer be necessary.

BBJ comment:

Sounds like a good idea. It may really take some burden off businesses. They won’t need to produce a range of data every time they enter a change or inquire about something. On an organizational level, it can also promote efficient working. The estimated savings however, may be partly offset by the costs of harmonizing the databases of various authorities.  

Estimated savings for businesses: HUF 31.7 billion

 

3. Eliminating the auditing requirement for companies

What the government says:

Companies with annual turnover of more than HUF 100 million have been required by law to have their financial reports audited. The cost of such audits is at least HUF 400,000 a year. Raising the threshold from HUF 100 million to HUF 200 million would relieve 17,000 businesses of this requirement in 2012 and 2013. After 2014, the threshold would be raised again to HUF 300 million, yielding HUF 7.5 million in savings and reducing the number of companies subject to this requirement.

BBJ comment:

This step will be warmly welcomed by businesses. The savings in this example are rather easy to calculate, and could be even higher than estimated, as the actual costs of financial audits is closer to at least HUF 500,000. However, the question remains: without an annual audit and considering companies’ taxpaying discipline, isn’t the government asking for trouble?

Estimated savings for businesses: HUF 5.6 billion


4. Simplifying corporate tax returns

What the government says:

The payment of a variety of taxes could be made with one transaction, even if they are supposed to be sent to different accounts. For example, a company could send VAT and product fee payments in one transaction. The reduction in the number of tax accounts from 140 to 75 could also help, as today companies pay each tax and related charges to a different bank account. Cutting the frequency of taxpaying can also cut red tape. Six taxes – health insurance contribution, vocational training contribution, rehabilitation contribution, car tax and agricultural production costs – should be paid yearly instead of the earlier quarterly or monthly frequency.

BBJ comment:

By making a single payment, companies can definitely save money as the charge of each transaction is around HUF 300-500. If the number of forms to be filled is fewer, so much the better. Timesavings resulting from reducing the frequency of taxpaying requirements for six contributions are not that significant, though the fact that accountants don’t need to constantly check turnover figures is appreciated. (The frequency of tax returns has been dependent on the company’ previous annual turnover.)

Estimated savings for businesses: HUF 15.2 billion


5. Reducing employment-related administration

What the government says:

Bureaucratic burden would decrease because employers would be required to provide only one piece of data on employees instead of 23. They would no longer need to detail and print out payroll contributions every month. Procedures for hiring and firing workers would be simplified. Setting up employee councils would be made optional. Companies, especially small ones where the workload is not necessarily even, could set a weekly (48/60-hour) or daily (12-hour) total instead of fixed daily hours, benefiting employment. Rules of liabilities would change so that no exaggerated claims could be made against the company.

BBJ comment:

The above changes would ease the burden of administration. Also, from the employers’ viewpoint, the planned reduction of severance pay, overtime pay, weekend and night shift allowances is a great cost-cutting measure. But will employees already fighting for their extra payment agree to take jobs with additional working hours but no extra allowance? Therefore the projected growth in employment is questionable. This is the most conflicting part of the program. Disregarding many employee rights or expectations, it may even go against the government’s aim of boosting employment. Making employee councils optional when workers hardly dare to complain for fear of sacking could again undermine the improvement of job rate figures. Or who knows, with another recession looming, one may be better off having a job with little protection than no job at all.

Estimated savings for businesses: HUF 125.6-145.6 billion + 150,000 new jobs + 1.5% growth in legal employment

Total estimated savings for businesses: HUF 105.2 billion

The BBJ thanks Judit Tóth, registered accountant and Ádám Balogh, employment law specialist for their contribution.