The half-million question: what about you, kata?

According to the statement of the Minister of Finance Mihály Varga on June 12, it is possible to know for sure about the future of the itemized tax (kata) of small tax-paying enterprises that

  1. negotiations are still ongoing,
  2. they would retain the benefits of preferential taxation for the little ones, but
  3. “The abuses on the katara will be eliminated.”

Forty percent penalty tax

Almost word for word is the same opinion of László Parragh, President of the Hungarian Chamber of Commerce and Industry (MKIK), who on the future of kata on May 29 saidthat preferential taxation should be maintained for the self-employed and low-income businesses, but in such a way as to close the loopholes that many are exploiting. As of January 1 this year, the mandatory chamber contribution of HUF 5,000 per year was no longer known to the regional, but to the national chamber, about the previous coordination:

there is an openness on the part of the decision-maker to raise the current 12 million annual revenue ceiling to 18 million for as long as preferential taxation currently exists. However, the other side of the balance sheet pan needs to be sorted out: the maximum annual billing bill of three million allowed for a single customer under normal taxation may be reduced. This prevents the skill of working full-time as a self-employed person.

The statement did not reassure small businesses. In particular, they did not understand why, if they want to keep the kata for low-subsistence businesses, why raise the annual discounted income ceiling from 12 to 18 million?

To call small entrepreneurs with a monthly income of one and a half million forints a bold rhetorical catch is low.

A further reduction in the annual billing ceiling of three million per customer will be difficult to explain, for example to that upholsterer, who would have delivered more than three million forints to a company while also serving the population living in the area. But he lost his corporate customer because of the special tax because he couldn’t have managed the 40 percent tax. And the contractor could not make a living from retail orders. Chess mat.

Not to mention that the provision is easy to circumvent, as a number of accountancy firms specialize in how to distribute their clients ’revenues among the companies they book.

Who did László Parragh consult?

So history repeats itself. “What was, will be the same, and what happened will be the same, because there is nothing new under the sun.” (Bible, Ecclesiastes 1: 9)

Two years ago, on the proposal of the President of MKIK, the National Assembly voted Lex Parragh known as kata-tightening, which caused a great deal of shock to entrepreneurs as they felt the change in the law was over their heads. Two serious criticisms have also been made of the tightening:

  1. the surcharge on the part of the amount invoiced to a customer within one year over HUF 3 million also adversely affects those who have been subject to the restriction through no fault of their own;
  2. in addition to leaving the kata tax rates untouched, the amendment also circumvented the tax insurance rules for taxpayers.

Within the Hungarian Chamber of Commerce and Industry, not only the content of the proposal, but also the way it was adopted the storm stirredas the President disregarded the statutes of the National Chamber, which provide that

a presidency resolution is required if the chamber is to issue an opinion on a significant matter affecting the economy as a whole or a wide range of entrepreneurs.

However, the President did not request the Bureau’s resolution when submitting his proposal.

7 + 1 point initiative

However, already in the autumn of 2020, the Budapest Chamber of Commerce and Industry (BKIK) put a 7 + 1 point package of proposals on the re-regulation of the kata on the table. In addition to the BKIK experts, Zoltán Gál Pál, György Vadász, vice-president of the National Association of Employers and Industrialists, László Zara, president of the Association of Tax Advisers, György Herich, vice president of the , Vice President of the Association of Chartered Accountants. The package was also supported by a number of hospitality and tourism organizations. The participants developed the following common position:

1. Let’s restore the esteem of law-abiding cats! (According to the available data, there are a majority of regular catastigers whose stigma and punishment are unfair and economically harmful.)

2. Confirm the check. (Covert employment abuses under the kata rules need to be tackled, and this requires, above all, increased control and sanctioning of abusers.)

3. Harmonize the kata with the system of labor income so that the system is sustainable!

4. The current tax burden should remain at HUF 6 million instead of Lex Parragh, above it there should be a new tax rate of 15 percent on income, but at least the monthly flat rate, however, for the extra payment there should also be a proportionately higher social security ratio!

5. Get a family tax credit for full-time cats too!

6. Zero tolerance for hidden employment! (For a period of two years, a special tax of 40 per cent on any contractual amount shall be levied on the new catastrophe where the former employee enters into a contract of employment with his former employer or its affiliated company.)

7. Instead of two, the choice of kata should be subject to three or even four conditions, but only if the tax package is adopted at the same time.

+1. Let’s withdraw the 3 million forint rule known as Lex Parragh!

Despite advocacy by stakeholders to work with decision-makers, nothing of the joint initiative has materialized.

Separation from employment

Point 7 of the 7 + 1 point initiative mentions a set of conditions, two of which are currently to be met by catastrophs. On the itemized tax on small tax enterprises and the small business tax solo CXLVII of 2012 law The criteria for dismissal under this Regulation are the following:

  1. the taxable person did not carry out the activity exclusively or in person;
  2. the small taxpayer did not obtain at least 50 per cent of the income for the calendar year from the person required to provide the data;
  3. the person required to provide the data could not give instructions on how to carry out the activity;
  4. the place of performance of the activity is in the possession of the taxpayer;
  5. the means and materials necessary for the performance of the activity were not made available to the small taxpayer by the person required to provide the data;
  6. the order in which the activity is carried out is determined by the small taxpayer;
  7. all members of the taxpayer declared as taxpayers or sole proprietors are not considered full-time taxpayers for the entire calendar year, provided that they received at least 50 per cent of the income of the taxpayer in a calendar year from a person with whom the taxpayer had no other statutory tax in none of the legal relationships.

This system of legal conditions, with minor clarifications, has been in force for almost ten years, since November 1, 2012, ie it can be implemented.

It is often said in law enforcement circles that if they want to improve crime statistics, they want to catch more offenders, it is not the law that needs to be tightened, but the existing one needs to be enforced because the law cannot catch any criminal.

This statement may also be true for tax audits. If you want to catch tax fraudsters, you have to take action against the fraudsters, not the taxpayers.

The employment burden is high

Attila Gazsi, vice-president of the National Association of Entrepreneurs and Employers, told the Index earlier that the association believes that kata, the low level of administrative burden and tax incentives, must be protected. There may be market participants, he added, who do not use this type of tax for their original purposes, but they are not lucky enough to use the term “abuse” either, as they also comply with the law and pay the tax.

Of course, we also perceive the anomalies resulting from the low tax burden of kata, but we believe that these can be smoothed out by valorizing the tax burden.

He said. According to VOSZ, the final and reassuring solution would be to reduce the difference between the tax and contribution burden between the choice of kata and the employee’s employment to a level that does not provide an incentive to terminate employment, but to do so. nonot only should the kata tax be increased, but also the employment burden should be reduced.

The persecution of witches has begun

It also has its own charm when interest groups start to select among the different professions which ones are in which typically employment is disguised by kata.

Thus, László Németh, the president of the National Association of Industrial Associations (Ipos) would be considered eligibleif the scope of kata activities were narrowed down, the typical professions in which kata would cover employment would be excluded in Hungarian, and those aimed at serving the population would be left behind.

According to him, cheap cats should not be allowed in some professions,

especially if the revenue threshold is raised in parallel.

Like the president of Ipos, there are several professions would be exiled among the cats László Parragh. He also provided concretes. The president of MKIK considers kata to be a good form of taxation for village hairdressers,

on the other hand, it is not right to have, for example, a lawyer, an insurance agent, a broker, an IT professional who could be a normal employee, thus evading taxation. Surprisingly, most cats come out of the vet anyway. […] In addition to the above, this could affect taxi drivers and journalists.

According to the President of the Chamber, there is also an example when the head of an international company in Hungary pays part of his salary as a catastrophe.

It should be noted that the Hungarian Chamber of Commerce and Industry in the working group established jointly with the Ministry of Finance

channel the views of the entrepreneurial side into the decision-making process.

What about the outraged catastrophes?

So today it looks like some of the cats will have to look for a different tax from next January. Decision makers would prefer to know everyone under personal income tax (PIT). Of course, for this, future employees must also find employers. In addition to PIT, there are other solutions.

The simplified burden-sharing contribution (ekho) a simplified tax option for those employed primarily in the arts, culture, press and sport. THE 2005 CXX. law defines the professions in detail. Those who do so do not pay social security contributions and the employer is exempt from paying social security contributions. It is important to know that the income taxable according to ekho cannot be taken into account when calculating the sickness benefit, while only up to 61 percent of the taxable income can be retired. The echo rate is 13 percent. And as an individual, 15 percent. The payer and the individual are not subject to any other tax or public liability in connection with the income on which the ekho is based. At the same time

it is not possible to claim an echo for all income from employment, only for an amount exceeding the value of the minimum wage.

Thus, if someone has a gross monthly income of four hundred thousand forints, they can apply for the calculation of ekho for two hundred thousand forints, while contributions are deducted from the other two hundred thousand forints according to the rules for “normal” income.

This tax can be applied up to an annual income of sixty million forints. There are exceptions here too. In the case of an individual

  • professional athlete, then 500 million a year,
  • 250 million in the case of an employed person of an international sports federation as a coach of a sports organization or national sports federation,
  • in the case of a retired individual, the amount is HUF 60 million per year.

(Cover image: László Parragh, President of the Hungarian Chamber of Commerce and Industry) Photo: Tamás Kovács / MTI)

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