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The implementation of the backward developments of Hungarian agriculture can also be helped by the new agricultural tax system valid as of January 1, and it can also help generational change. The system can also provide a realistic picture of the situation of farmers, primary producers and family farms after administrative simplifications. In any case, the Minister of Finance supported the proposal to reduce tax revenues by rethinking the 30-year regulation; Among other things, Balázs Győrffy, president of the National Chamber of Agriculture (NAK), spoke about these in an interview with Napi.hu.
– In the preparation of agricultural tax reform, it was often argued that the era of the primary producer, the family economic system was outdated. What did they mean by that?
– The new law, which will take effect in January, will replace a set of laws from 20-30 years ago, during which the beautiful will gradually become obsolete. When it was created, it was a structure with a particularly good attitude and a great operating framework. However, if we look at the fact that, for example, the lower exemption limit of the PIT statement was HUF 600,000 for two decades and now, it becomes clear why the need to review the system was justified. The previous regulation was a glass ceiling that hindered developments, the growth of companies.
– What do you mean that you are not in favor of improvements?
– This can be felt with an example: if there are five of us on a family farm, we can be tax-free up to 8 million HUF per capita, that is, the total value limit is 40 million HUF. In the case of an income of HUF 39 million, I think several times whether to make a value-added investment, as it can result in a multi-million dollar tax debt.
– Now all that is changing is that a person will be tax-free up to about 10 million florins. Doesn’t this bring a new glass ceiling that will hamper the development of agriculture?
– No, because the new system is based on much more favorable conditions. For example, the amount of regulatory grants does not count as income. Furthermore, the threshold will not remain inflexible, because we have not set a fixed amount, but there will be a limit linked to the minimum wage, which can therefore increase and change from year to year.
Taxes are not paid up to five times the annual minimum wage, or approximately HUF 10 million in income. If producers exceed this threshold, they will only have to pay taxes on the amount by which it is exceeded. In the case of sales revenue of HUF 11 million, 10 percent of the HUF million out of HUF 10 million, i.e. after 100 thousand HUF, a personal income tax of 15 percent must be paid, that is, 15 thousand HUF. Discounted flat rate taxes may be applied up to an income of approximately HUF 20 million. Furthermore, if the producers get together and set up a family farm of primary producers, this already means a ceiling of 80 million for the participation of four people. Regulatory support, rent received for own land and purchase price or capital repayment of land used by the company for at least 15 years, up to HUF 50 million per year, can be deducted from companies without obligation to pay taxes. Switching between the various modes of operation does not primarily lead to an increase in the tax burden, which is also conducive to development.
– A retention approach is emerging in the new agricultural tax reform. Income from primary producers, ancillary jobs, and other agricultural jobs are separated. Aren’t you afraid that family farmers will start playing chess to move money from one activity to another to optimize their taxes?
– No, because there is no real separation, the system will be more permissive and it will simply not be worth it. Until now, if someone operated a village guest table, it was considered a separate activity and income. In the future, income from ancillary activities may reach a maximum of 25 percent of the total income of the primary producer. In addition, the activities of processing products from raw materials produced on the farms themselves will not be included in the income limit of 25%, up to the amount specified in the Small Producers Regulation. We have also reduced the administration because the calculation is done as a unit.
– To what extent does the current tax system reflect the market, what do you expect, how many companies will be able to take advantage of the modified system at these billing levels?
– It is very difficult to draw general conclusions and it may take a few years for farmers to adapt to the new rules. According to our calculations, 80 percent of national producers will be subject to the new tax system.
The new system is also necessary to get a complete picture of agriculture, currently no one can say how many Hungarian entities there are. We have nearly 300,000 primary producers and 80,000 family farmers, while only 168,000 request help each year. However, I think that the number of active players may be below 100,000.
Now we can have a clearer picture of the system that will come into force on January 1, which is also important, because we can only plan economic policy if we know who we are addressing.
At present, however, many of the registered primary producers are in the company only because they provide an additional tax exemption of HUF 8 million. With the current system, babies as young as a few months old have already been registered as members of the family farm.
– It will be an important change that in the future someone can only become a primary producer from the age of 16. Isn’t this unfavorable for targeting young people, doesn’t it hinder generational change in agriculture?
– Generational change is a problem throughout Europe, and I don’t think that is what discourages them. It is not the existence of a primary producer card that triggers a commitment, it is decided elsewhere that someone remains in agriculture.
On the one hand, whoever is now a primary producer and under 16 will not lose this, the limit only applies to new entrants. On the other hand, with the current system, even a young man now in family farming would repeatedly find how valuable it should be to apply those fiscal rules. The new system will provide much more favorable fiscal conditions, less administration, which can make it more attractive to stay in the area.
– It has been argued that a new, more transparent system will also facilitate lending in the sector, but in recent years agriculture has increasingly taken advantage of these opportunities.
– Openness of farmers is not a problem when it comes to loans. After the 2008 crisis, it has become an empirical experience that the farmer is the best debtor, especially if the land is the guarantee of his credit.
The financing problem was with the banks, because the system until now was opaque, it was difficult to know what the real income was. As I mentioned earlier, it was in the old system that the loopholes that arise from regulation were worth exploiting. Now, under more favorable and flexible conditions, the actors will not be interested in this. If the bank sees a real picture of the operation, it will be easier and faster to disburse loans.
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