What would the latest tax proposal thrown from the clear sky do?

The situation worsens, there are proposals to support companies

In recent weeks, the coronavirus epidemic in Hungary has steadily reached a new peak, while the economic recovery is slower than before (the government expects a 6-6.5% recession instead of a 5% decline this year), and Restrictive measures have been put in place that do not lead to a slow recovery either. The government is trying to mitigate the negative impact of the restrictive measures on the economy, which is why it has also given relief to hotels and restaurants, especially on the fiscal side.

These measures come from the Chamber of Commerce and Industry, but László Parragh, the president of the organization, made other proposals during his weekend consultation with Viktor Orbán to alleviate the situation of national SMEs in the crisis. These include a temporary reduction of the corporate tax rate from 9% to 5% and a one-year suspension of corporate tax. However, it does not hurt to know that although

Such a move would temporarily reduce the burden on businesses, but would open a huge hole in local government budgets.

In our article we present the impact that the chamber’s latest proposals would have.

The fate of hundreds of billions is at stake

In total, more than 800 billion guilders (2020-2021) can flow to local governments along this line. For comparison: in 2020, the government initially expected HUF 500 billion from corporate tax, meaning fashion revenue far exceeds this.

For most municipalities, this is the largest source of budget revenue. For example, the deputy mayor of Budapest noted in his response that the hip is “the only tax collection of the Metropolitan Municipality. This is where BKV works. If there is no commercial tax, there is no public transport.” no one, because the city also pays for street lighting with business tax. “Mayor Gergely Karácsony recently said that suspending the hip would practically amount to a nap in the case of the capital and larger local governments, if the government intervened, the Budapest’s public transport would have to stop immediately afterwards.

Due to its economic strength, the capital would be the most affected in nominal terms by a temporary suspension of the hip for one year, and this year originally Budapest expects revenue of HUF 174 billion.

But some of the larger cities are worth seeing, where a significant amount of business tax also flows due to the fact that large cities are already attracting businesses that pay this local tax more strongly here.

And the winners

If the government accepts the MKIK proposal, the liquidity situation of the companies would temporarily improve, since, depending on the turnover, that is, the size, the burden would be reduced.

It is worth remembering here the proposal of the Competitiveness Council before February of this year, that is, the coronavirus epidemic, which would also have affected the hippie. One change would have been the removal of the obligation to complete the local business tax in December and that depreciation could be deducted from the tax base and, third, companies could deduct five times their R&D expense from the tax base. Then in our article it became clear how much business tax companies pay on average based on company size. It is also clear from this table that large companies are more likely to benefit from a possible tax suspension, as companies pay the hippie in proportion to sales revenue.

Our previous article also revealed the amount of business taxes paid by some large national companies. A significant temporary relief for them would be to suspend the payment obligation for one year, as proposed by the president of MKIK.

Gábor Fajcsák, RSM partner When evaluating the two important tax proposals, the Chamber explained to the Portfolio: “reduction of corporate tax companies that would otherwise perform relatively well even during this difficult period as they make a profit. ” If, on the contrary, the objective is to help sectors and companies in crisis as a result of the crisis, a temporary reduction of the Tao rate is not an appropriate tool, because only profitable companies have the advantage, “he said.

When we look at budget room for maneuver and how to manage it well from a single source, then According to the head of the tax business, it would be worth providing specific support to companies that need it. The tax expert has previously expressed similar views on a number of economic policy measures.

A temporary hip suspension “Perhaps a more logical degree in favor of reducing the Tao rate, since companies do not pay it based on their profits, but this type of tax cannot differentiate between companies that have been positively or negatively affected. the current crisis. In this case, a kind of cut-off principle would prevail and all companies would receive support, not just those that really need help, ”he said.

The expert’s opinion is also supported by the fact that the top 15 companies operating in Hungary would receive almost 10% of the mortgage exemption (amount exceeding HUF 70 billion), as can be read in the table below.

Top Image: In the image released by the Prime Minister’s Press Office, Prime Minister Viktor Orbán (j) meets with László Parragh, President of the Hungarian Chamber of Commerce and Industry (MKIK) (b) at the Monastery Carmelita on November 8, 2020. In front of Antal Rogán, Minister (s) in charge of the Prime Minister’s Office, with Márton Nagy, Acting Prime Minister and Economic Policy Advisor. Source: MTI / Prime Minister’s Press Office / Zoltán Fischer