BBJ analysis: New taxes hit some sectors harder

Although the government promised that taxpayers would see no more dramatic changes to the tax system, tax consultants agree that some of the amendments could have profound consequences in several sectors. These include an extraordinary health contribution on tobacco wholesalers, an increase in excise taxes and the modification of the retail supply chain, according to PwC’s Tax Alert.

Dramatic changes or not, the 2015 tax package has created enough drama with mass protests, flying computer parts and thousands of mobiles phones lit like candles on the dark streets of Budapest. But the government backed down and the scope of the telecommunication tax will not be extended to internet data transfers, at least for the time being.

The government claims that the 2015 tax package, which was approved on November 18, aims to support families and small businesses, but will keep the taxes levied on special sectors in place. Following a long-held Fidesz philosophy, the focus of taxation continues to be shifted from taxes on income towards consumption and sales-type taxes as well as taxes that serve environmental and health preservation purposes. The package also contains measures to avoid tax evasion.

Taxpayers shouldn’t get their hopes up about the reduced VAT rate they might have spotted in the package! Hungary’s standard VAT rate will remain the highest in the EU. A 5% VAT rate will be applied only to goods deemed intermediate products and to large live animals and abattoir processed animal products. Contrary to earlier plans, businesses will not yet see a one-digit corporate income tax, either. Here the Budapest Business Journal presents the most important changes in the package with the help of KPMG Tanácsadó Kft. and PwC Magyarország.

FREE LUNCHES TAXED MORE

Among the amendments, the changes on fringe benefits – like food or travel vouchers – concern most people. If the benefits are not credited on a SZÉP Card, any benefits exceeding the HUF 200,000 yearly limit will be subject to a 51.17% tax rate. The tax rate remains 35.7% below the yearly limit. The balance of the SZÉP Card may be used for leisure-time activities, catering and hotel services, says the government.

The top tax rate applicable on any advertising tax base exceeding HUF 20 billion increases to 50% from the previous 40%. This will take the biggest toll on German-owned TV station RTL Klub, which stands alone in the top bracket. RTL Klub apparently received this special attention because it has been giving more scrutiny to the government in its newscasts since the advertising tax was introduced earlier this year.

As for the special tax on financial institutions, OTP Bank will also receive special attention, but in a good way. According to an amendment some call “Lex OTP”, taxpayers with a Hungarian tax number are entitled to a tax refund capped at half of listed taxes paid for 2014 but not more than HUF 5 bln, in the case of certain business events caused by the Ukrainian crisis. OTP’s Ukraininan subsidiary accumulated HUF 37 bln in losses in the first nine months of 2014.

Another important change related to the special taxes on financial institutions is that the proposal eliminates the current special tax levied on investment fund management companies. However, it introduces a new one on distributors and investment funds. An annual tax of 0.05% will be levied on a quarterly basis on distributors seated in Hungary. For the so-called “fund of funds”, funds that invest in other funds rather than shares or bonds, there is a special rule to avoid double taxation. KPMG notes in its Tax Newsletter that “unfortunately the wording is not fully clear and thus it remains a gray area”. Furthermore, in line with recent European Court judgments, portfolio management services cannot be exempted from VAT any more.

Perhaps the second most controversial change after the now-scrapped internet tax is the increase of the food chain supervision fee from its current level of 0.1% of sales turnover, which will hit big foreign chains, like the market leader Tesco. The fourth biggest player, Spar, recently told reporters, that it has paid HUF 325 mln in supervision fees so far, but the fee to be paid will be 30 times higher, at HUF 9 bln next year. The fee will be determined on a progressive range. For entities with less than HUF 500 million turnover, it will be 0%, but it will reach 6% for those with more than HUF 3 bln in revenues.

The scope of public health product tax will be extended to alcoholic beverages. The tax amount will range from HUF 20-HUF 900 per liter, depending on the alcohol content.

Another unpopular change is that municipalities will be entitled to introduce new taxes on private taxpayers.

COUNTERING THE BLACK ECONOMY

The government says it aims to continue to reduce tax fraud and to use all possible means in the fight against tax evasion. Among anti-tax avoidance measures, the most significant, according to the government, is the system set up to prevent VAT fraud. The purpose of the Electronic Road Freight Traffic Monitoring System (EKAER) is “to keep track of the actual route of goods and to ensure that no goods may be placed on the market in Hungary, which were not previously reported to the tax authority. The new system will allow the authorities to perform their controlling and monitoring functions more effectively than ever before.”

The minimum VAT amount in invoices to be reported will be halved to HUF 1 mln. New businesses are required to submit monthly VAT filings in the first two years of operations. The tax authority can request data from telecommunication service providers with respect to online sales turnover.

SUPPORTING FAMILIES

New tax breaks are planned for couples that marry if at least one of the partners is marrying for the first time. From 2016, the family tax base allowance for families with two children will be increased each year. In 2016, a tax base reduction of HUF 78,125 per month per child can be claimed, up from HUF 62,500 next year. Employers would be eligible for 100% of the social tax allowance in cases where employees are eligible for certain maternity benefits, but only in cases where they are employed only part time.