The Ministry of Finance has submitted new economy protection and competitiveness improvement bills to the National Assembly. The Hungarian economy is expected to perform well above the EU average again this year. In the interests of preserving Hungary’s economic results, the Cabinet decided in May on the first Economy Protection Action Plan, and Parliament has already decided on six of the Plan’s seven points relating to tax cuts, for instance the reduction of social contributions tax and small business tax (KIVA), while the seventh point is part of the bill that has been submitted today.

According to this point, from 1 July 2020 four contribution types will be combined into a single social security contribution. According to the bill, also from 1 July, all working pensioners will be exempted from contributions, enabling the majority of those affected to realise 14 percent extra income. In addition to working pensioners, families with children can also count on further tax cuts in view of the fact that the family tax benefit relating to the number of children will also become more favourable. According to the bill, the tax office will also be able to prepare the draft VAT return of enterprises from the spring of 2021.

The whitening of the economy will be shifting to an even higher gear next year. Online data will have to be provided with relation to practically all invoices, which in addition to whitening the economy will also enable the National Tax and Customs Administration (NAV) to prepare the draft VAT returns of enterprises from as early as spring 2021. The tax office currently sees the data relating to invoices for over 100 thousand forints online, but from 1 July 2020 it will see the invoices issued to so-called domestic VAT payers, meaning essentially all business invoices, while from 1 January 2021 the tax office will also see all invoices issued to private individuals.

The online invoice system has also been a success in the opinion of market analysts, according to whom the measures have generated 200-250 billion forints (EUR 600-750 million) in additional revenues for the state treasury during a one-year period. The introduction of online invoicing has also played a significant role in enabling the rate of VAT evasion to fall below 10 percent in Hungary in 2018. If Parliament adopts the latest bill, in future the tax office’s risk analysts will essentially see all invoices, meaning the budget can expect further increases in revenue, while honest taxpayers will be able to count on fair market competition that is free of tax evaders and illegal businesses.

Two further measures will also be facilitating the whitening of the economy next year. From 1 July 2020, an invoice or receipt will also have to be issued with relation to the majority of VAT-free transactions, for instance with relation to private healthcare, dental or education services, or the sale of property. In addition, the deadline for issuing invoices will be reduced from 15 days to eight days.

In addition to encouraging businesses to abide by the law, the fact that the tax authority will also be informing employees with relation to possible tax evasion on the part of their employers will also serve to protect employees.

The point of the Economy Protection Action Plan concerning the simplification of the tax system is not only the result of the fact that the government’s target is to reduce the number of tax types by one third by the end of the current term, but is to a much greater extent founded on the fact that businesses can save a lot of time and money as a result of the reduction of bureaucratic burdens. This is also assured by the bill submitted today, according to which from 1 July 2020 the pension contribution, the ‘in cash’ and ‘in kind’ healthcare insurance contributions and the job market contribution will all be combined into a single tax.

The new unified contribution, called the social security contribution, will be set at 18.5 percent. In addition to significantly simplifying the tax system, the introduction of the unified contribution also assures that for instance primary producers and people working based on an engagement agreement will also be eligible for job market services from 1 July.

In addition to realising a significant reduction in bureaucracy, the new, Unified Contribution Act will also result in several tax cuts. Enterprises will be saving a total of 7.5 billion forints (EUR 22.4 million) a year thanks to less strict minimum contribution base regulations. While healthcare insurance and job market contributions must currently be paid with respect to at least 150% of the minimum wage, the limit will be reduced to the minimum wage from 1 July 2020.

From 1 July 2020, all working pensioners will be exempt from contributions. Currently, the favourable regulation according to which pensioners must only pay personal income tax with respect to 15% of their salary is only valid for people in proper employment. According to the government’s calculations, the expansion of the regulation will leave a total of some 20 billion forints (EUR 59.8 million) a year in the pockets of those affected.

The family tax benefit relating to the number of children will also become more favourable from 2020 in view of the fact that the benefit can currently not be deducted from the 1.5 percent job market contribution, but from 1 July the family benefit can be enforced with relation to the full, 18.5 percent social security contribution. In 2020, the government will be leaving the highest amount ever recorded in the pockets of families with children, some 380 billion forints (EUR 1.14 billion), as a result of tax benefits. This sum will be increasing by a further one billion forints-a-year from next year thanks to the favourable regulation, which is made possible by the Unified Contribution Act.

In the spring, within the framework of the Family Protection Action Plan, the National Assembly also already adopted the new regulation according to which mothers with four or more children will be exempt from paying personal income tax from 1 January 2020.

(Ministry of Finance)