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Economy ministry pulls tax authority closer

The reorganization is intended to improve efficiency and assist cooperation with businesses.

New tax chief András Tállai announces staff cuts at a January 22 press conference. (Photo: MTI/Tibor Illyés)

To hear National Economy Minister Mihály Varga tell it, reorganizing the tax authority will improve efficiency and collection in Hungary and increase competitiveness.

A tax consultant interviewed by the Budapest Business Journal agreed: “These structural changes will have less impact on the daily operations of the tax authority. Basically the procedures should remain the same,” said Tamás Gyányi, a partner at WTS Tax Legal Consulting Hungary.

Under the reorganization, Hungary’s National Tax and Customs Authority (NAV), once a more independent body, is coming under the aegis of the National Economy Ministry. The ministry says these changes should be largely invisible to taxpayers, and that the restructuring would make it possible for the authority to simplify and speed up processes inside the office and to contribute to the development of Hungary’s economy.

The National Economy Ministry said in a statement that the tax authority’s 79 organizational units will be reduced to 39, the number of departments will also be cut, from 35 to 29, and the number of top managers from 154 to 79.

According to Gyányi, this change will simplify the administration in the short-term, while in the long run the government expects tax inspections and deadlines to become shorter because the effectiveness of the tax authority will improve.

Beyond the decreased number of organizational units and top managers, András Tállai, secretary of state for Parliamentary Affairs and Taxation and deputy minister of national economy, announced on January 22 that the authority is expected to cut staff by 5%, from 22,442 to 21,320.

Structurally speaking, the reorganization of NAV involves two major changes, according to Gyányi. “First of all, NAV is no longer governed by its own president, but the Secretary of State [Tállai] is in charge, which means direct control by the state government of the tax authority rather than just supervision,” Gyányi said. “The second important change is the elimination of the regional directorates. Formerly the 19 county general directorates were managed by seven regional general directorates, but the separate central government body also existed.”

In practice these changes mean that the local authority directorates are expected be supervised and managed by this central government directly, leaving out a layer of administration, Gyányi said.

More changes are expected as Economy Minister Varga is required to draft a proposal by March 31, according to reports, and these could be enacted by the end of April.

Varga said that these changes had to come, because the Hungarian tax system has reached a turning point. The minister maintained that the newly reorganized NAV will support businesses and individuals as partners, to ensure them of being able to pay taxes in a simpler and faster fashion. He also said that the new system will carry less administration for businesses and individuals, creating a client-friendly environment.

According to Gyányi the changes might not affect the everyday lives of businesses and individuals, staying invisible for taxpayers, “they rather have influence on the insider work-flow of the tax authority”. Due to the reorganization, he said, “the collection of the state revenues will be more effective and this is actually one of the aims”.

Varga orders investigation of NAV following OLAF report

National Economy Minister Mihály Varga ordered an investigation of the National Tax and Customs Authority (NAV) as to why it did not inform NAV leader András Tállai of an inquiry being launched in a case brought up by the EU’s anti-fraud office OLAF, which said it suspects officials of embezzling anti-corruption funds, Hungarian online daily index.hu reported on January 25.

The office in charge of coordinating with OLAF operates within NAV, and yet Tállai was not informed about the investigation under the jurisdiction of Chief Prosecutor Péter Polt, a press statement issued by the ministry says, according to index.hu. The online daily said Varga has called for an immediate and expedient investigation of the issue.

During its four-year investigation, OLAF said the office found fraudulent invoices and cash payments made by a consultant subcontracting for the former national development agency NFÜ, hvg.hu reported. OLAF said the money that was allegedly mishandled was provided by the EU to monitor whether public procurement procedures were carried out in a legal manner. According to OLAF, the case may involve top Hungarian officials responsible for handling EU funds.