“The government will be making the regulations relating to the itemised small business tax (KATA) fairer”, the Ministry of Finance’s State Secretary for Tax Affairs said in an interview for Hungarian daily Magyar Nemzet.

In the interview, which was published in the Saturday edition of the paper, Norbert Izer said several tens of billions of forints in additional revenue could be generated next year as a result of the changes. “The sum will be paid by large companies who today employ people using fictional contracts and through the abusive application of the KATA system”, he declared.

According to the State Secretary, the changes will not affect most KATA taxpayers, but could tangibly clean-up market conditions. “The level of the KATA tax will not be changing”, he stated. According to Mr. Izer, the tax “will remain the European Union’s simplest and lowest costing tax opportunity”. “The only goal is to exclude the possibility of system abuse”, he stated.

“The essence of the problem is that certain enterprises are not employing people within the framework of an employment agreement, but as individual entrepreneurs who pay their taxes themselves using the KATA system. As a result, these companies do not pay any employer contributions, meaning workers will have a significantly smaller pensions, in addition to which they are not being afforded by any kind of labour protection”, Mr. Izer highlighted.

The most important change would put an end to this situation by requiring additional tax payments in certain instances. If the total value of transactions between a KATA entrepreneur and one of their business partners exceeds 3 million forints within a given year, then 40 percent tax must be paid on the sum exceeding 3 million forints. It is important to note that the extra tax will have to be paid by the large companies. As a result, it will no longer be worthwhile to engage in “concealed employment”, the State Secretary told Magyar Nemzet.

(Ministry of Finance / MTI)