The Ministry for National Economy published the draft of the new law on tax procedures on 31 July, which will take effect on 1 January 2018. The new laws (new Act on Rules of Taxation and the completely new Act on Tax Administration Rules) bring changes to taxation in several respects. One of the most important is related to the volume of potential penalties, and includes both positive and negative changes for taxpayers.
Painful amendment in the new law on tax procedures: increase in late payment and self-revision interest
One painful amendment for taxpayers concerns late payment interest and self-revision interest (this is linked and generally amounts to 50% of the late payment interest). According to the draft of the new law on tax procedures, the rate of interest would increase from double (1.8%) the base interest rate of the central bank (0.9%) to the base interest rate of the central bank plus five percentage points (5.9%). With this amendment, the legislator wants to do away with the situation that the cheapest creditor in Hungary is currently the tax authority, more precisely the Hungarian State.
The minimum amount of late payment interest is also to change in the future. According to the draft, the tax authority would not charge late payment interest that does not amount to at least HUF 5,000 (approx. EUR 16). Currently, this threshold is HUF 2,000 (approx. EUR 6). According to the draft, the administration and recovery of small interest debts ties up disproportionately large capacities, which justifies raising the threshold.
Tax penalties
At present, the penalty rate is set at 200 percent of the tax shortfall if this shortfall is derived from concealed income, or from falsifying or destroying receipts, books and records. The draft would reduce the 200 percent rate to 100 percent since experience shows that a penalty of an excessively high rate of 200 percent does not really motivate greater legal compliance, it only increases the amount of unpaid debts.
One new element is the conditional tax penalty allowance. If a taxpayer surrenders their right to appeal against a first-instance decision on the subsequent assessment of taxes, and pays the tax difference defined in the resolution by the due date, 50% of the levied penalty will be waived.
Default penalties
The new law on tax procedures would simplify the regulation on default penalties and would eliminate a few situations currently penalised, for instance, the failure to notify the tax authority about domestic employees, the mitigation of unlawful tax advances, the violation of the obligation to keep invoice records and the penalty imposed instead of closing a business’ doors. Unfortunately, the default penalty on failing to comply with EKAER rules would remain in place, meaning a penalty of up to 40% of the value of the goods concerned. Furthermore, in the future many taxpayers will have to face default penalties for not meeting data reporting obligations as per value added tax summary reports, or if the data report is late, incomplete, incorrect, or contains false information. The ceiling on the default penalty levied in these cases is calculated by multiplying the number of affected invoices and documents qualifying as invoices with the maximum penalty rate otherwise generally applicable for the taxpayer. In practice, this means that if 3 invoices are reported with incomplete information in a given period, the tax authority might levy a default penalty as high as 3 x HUF 500,000 (3 x EUR 1,600) on the business entity (we dare not even think about higher figures).
Eliminating complicated legal institutions
For the sake of reducing bureaucracy, several complicated legal institutions might be eliminated. According to the new law on tax procedures, for example, increased tax authority supervision which lays an excessive burden on affected businesses due to its fixed formalities will be stopped in the future. Another important amendment is to take effect regarding the suspension of tax numbers. The legislator proposes terminating this practice, since it argues that this puts taxpayers in an extremely difficult position from a taxation point of view. Taxpayers with a suspended tax number have restricted rights, yet they are allowed to carry out their business activities and have to meet their tax payment obligations. The proposal would eliminate this incomprehensible and complicated duality.
Tax authority as a service provider
Pursuant to the draft legislation, the NAV is to introduce several new services, one of which is “mentoring”. Accordingly, the tax authority will provide information to start-up businesses in person or in writing about their tax obligations, and about where to find information helping them to meet these obligations. After establishing contact, the tax authority will provide tailored assistance for half a year.
The draft brings about a positive change with regard to tax inspections too. Pursuant to the new law on tax procedures, the period of tax inspections may not exceed 365 days. This change will obviously not affect private individuals, the sole proprietors and reliable taxpayers. In their cases, inspectors still have 180 days to complete their work.
