Most of the tax changes introduced as of this year are in line with previous Hungarian taxation trends aimed at decreasing the burden on individuals and shifting the emphasis to consumption. Still, the overall tax burden remains fairly high compared to regional peers.
As usual, January kicks off with some new tax regulations. Yet contrary to previous years, there are no drastic changes on the horizon. The previous trend of lowering the tax burden on employment related and income taxes continued last year, while the ratio of indirect taxes within the state income was increased. The biggest change might be the upcoming introduction of the online invoice reporting obligation.
“From July 2018, taxpayers will have to provide electronical information on the content of invoices including a charged VAT of at least HUF 100,000, issued by an invoicing program”, Daniel H. Nagy, senior tax advisor of MAZARS told the Budapest Business Journal.
Consequently, the invoicing program must ensure the electronic transmission of the invoice content to Nemzeti Adó- és Vámhivatal (the National Tax and Customs Administration, or NAV). The program must be able to provide NAV with information on the invoices upon issuance, but not later than within 24 hours. This regulation will enter into force on July 1.
Another notable change is the increase of the minimum wage to HUF 138,000, and to HUF 180,500 for positions that require qualifications; this translates into an 8% increase compared to 2017. In parallel - as a form of compensation for the increased employment costs at employers - the social tax rate was decreased from 22% to 19.5 %. This, however, is not a novelty: the trend in lowering social security charges began last year, when the rate of social contribution payable by employers was reduced more sizably from 27% to 22%.
“The additional reduction of employers’ tax and contribution burdens seems to be well justified,” Nagy noted. “Employers’ full wage costs are close to 160% of net wages in average in the Central and Eastern European region, due to the high payroll related taxes and contributions.”
The so-called tax-wedge, which reflects all the taxes and contributions to be born in relation to wages, still remains especially high in Hungary, the expert said. Besides the social tax rate, the rate of the healthcare charge is changed to 19.5%. SME’s subject to KIVA (small business tax) also see a favorable change: their tax rate is decreased to 13%.
“To compensate for the loss to the national budget caused by the beneficial changes in income taxation, the state should focus more on effective tax collection, especially in the field of value added tax,” Barbara Koncz, director of PwC’s tax advisory team told the BBJ. “Although the VAT gap is continuously decreasing due to anti-VAT fraud measures such as EKAER [the Electronic Trade and Transport Control System for goods transported by road] and online cashiers, there is still room for improvement.”
Nagy added: “The change of VAT rates could, in theory, impact the central budget. However, the recent changes might not have a significant effect after all.” The items where the VAT-level was reduced this year - such as the rate of internet access (reduced from 18% to 5%, the lowest in Europe) or fish for human consumption (down from 27% to 5%) - account for a small portion of the overall VAT-revenues. The VAT rate of restaurant services, reduced from 27% to 18% starting in January 2017, is further reduced to 5% from 2018. However, a tourism-development contribution of 4% was introduced from the same date.
In order to increase the mobility of employees, seen as essential in combating the labor shortage, the threshold of the tax-exempt subsidy for housing is increased in the frame of personal income tax, and a new tax base deduction item was introduced in corporate income tax.
“With the above measures, the government intends to provide tools for employers to ease the pressure caused by the lack of workforce in certain geographical locations. The administrative burden on employers is also eased since, from January 1, 2018, employers are no longer in charge of preparing tax returns for their employees. NAV is preparing a draft for all employees,” Koncz explained.
“Regarding corporate income tax, a favorable change is that the 10% minimum limit has been deleted from among the conditions of the ‘notified share’ acquisitions,” Nagy said. On the basis of the above, from January 1, the tax administration could be notified of acquisitions of any size of share (still within the 75-day deadline after which rights are forfeited).
Some new rules introduce simplifications: the seven regular audit procedures will be replaced by only two, the regular tax audit and the compliance audit. The regular audit will generate a closed taxation period, and the compliance audit will cover all other previous tax audit types (e.g. tax audits before refunding).
In order to avoid unnecessary appeals and to speed up collection, a new instrument, the conditional tax penalty, is introduced. The taxpayer should pay only 50% of the tax penalty assessed if it waives the right to appeal against the first instance resolution and pays the tax short fall in time. The conditional tax penalty and the benefit for “reliable” tax payers can be combined, which could further decrease the payable tax penalty to a maximum of 12.5%. As of January 1, an objective deadline is applicable for tax audits. As a general rule, tax audits cannot be longer than 365 days (the deadline is 180 days for “reliable” taxpayers).
“While this deadline definitely puts some pressure on the tax authority, it will be very beneficial for the tax payers as they can count on having the audit closed within the objective deadline,” Koncz said.