The Government of Hungary has submitted its bill for the 2023 budget to Parliament. The bill features economic growth of 4.1 per cent, a deficit target of 3.5 per cent, a public debt ratio reduced to 73.8 per cent by the end of next year, and inflation of 5.2 per cent. Naturally, the bill may be amended on a number of points before it is adopted, but it is worth being aware of the main directions now in order to start preparing in good time. The bill contains a number of tax changes, the main points of which are summarised below.
I. Personal income tax
The bill proposes that, in connection with fuel cost accounting according to the consumption standard, the state tax and customs authority should also publish the consumer price of fuel that is typically distributed by only one large fuel distribution company (CNG) with national competence.
The bill also contains several minor changes:
- In future, those entitled to the allowance for young people under 25 would be able to declare that they do not wish to claim the allowance not only to their employer or to bodies paying them a regular income but also to all paying bodies, thus avoiding the tax payment obligation at the end of the year.
- The items that could be accounted as costs without verification would in future include the definition of fuel consumption standard to be accounted without verification when using a rechargeable hybrid vehicle, and an amount equal to the price of 3 litres per 100 km of unleaded 95 petrol, as published by the state tax and customs authority, could be accounted without verification when using a fully electric vehicle.
- The bill adds the methods for rechargeable hybrid and fully electric vehicles to the list of optional methods for determining the amount that may be accounted on the grounds of fuel consumption in connection with the use for official purposes of a vehicle owned (hired, leased) by a private individual undertaking independent activity.
II. Corporate tax
Tax base adjustment
The Government would introduce new items reducing and increasing the tax base:
- The tax base would be reduced by that part of the amount of the impairment loss recognised as an increase in pre-tax profit in previous tax years when capital ownership was removed from the books – as verified by tax returns and supporting statements – which as yet has not been used for tax base reduction as reversal.
- The tax base would be increased by the amount of any impairment loss with regard to capital ownership that the taxpayer has decided to offset in the tax year against its pre-tax profit for the tax year.
Transfer pricing
The bill further proposes to introduce a new obligation regarding transfer pricing. Taxpayers subject to the transfer pricing record obligation will also be required to provide information in their corporate tax return in connection with the determination of the arm’s length price. The precise content of the information to be provided would be defined in the transfer pricing decree.
The bill would also revise the regulation of the application of the interquartile range. Under the amendment, the interquartile range must be applied when transfer pricing methods are applied by considering data on comparable products, services or businesses that are stored in a publicly available database or a database verifiable by the tax authority, or are available from another source that is publicly accessible or verifiable by the tax authority.
The rules on arm’s length price would also be amended. On this basis, if the price applied is within the arm’s length price range, there is no need to adjust the transfer price and it can be considered the arm’s length price. If the price applied is outside the arm’s length price range, the median must be considered the arm’s length price and the transfer price must be adjusted to this point. An exception is when the taxpayer verifies that a price within the range other than the median best corresponds to the transaction in question, in which case the adjustment must be made to that price rather than the median.
III. Value added tax
Group taxpayers
In view of the fact that there is no provision for this under the current legislation, the bill provides that, after the cessation of group taxpayer status, the representative appointed by the members of the taxpayer group may make a valid declaration regarding the VAT obligation on behalf of the dissolved taxpayer group for the same period as the group taxpayer status existed.
Subsequent tax base reduction
Under the bill, with regard to repayment, the taxpayer would have the right of subsequent tax base reduction also in the case when the reimbursement is not made directly to the end consumer. Through this provision, the bill intends to handle sales schemes when the taxpayer making the sale is not in direct contact in the sales chain with the customer who buys the product or service.
Under the bill, when applying for subsequent tax base reduction arising from payment made based on the price-volume agreement, the taxpayer would not have to conduct self-revision but could account for the amount concerned in the tax period which includes the date of the repayment at the earliest.
IV. Small taxpayers’ tax (KATA)
Under the bill, taxpayers affected by the sanction of tax number cancellation could not register under the small taxpayers’ tax irrespective of the date of the cancellation of their tax number. The Government considers this amendment justified because certain taxpayers could come to the conclusion that, although their tax number is cancelled, as this happened over two years earlier, it would not hinder their registration under the small taxpayers’ tax.
V. Innovation contribution
Under the amendment, the Hungarian premises of a foreign-based company, including a branch establishment, would also have an innovation contribution payment obligation. The premises which thus become subject to the innovation contribution would state, declare and pay their innovation contribution advance due for the tax year 2022 by 20 October 2022. The contribution advance is the anticipated payable amount calculated pro rata for the days of being subject to the contribution for the tax year 2022. A contribution advance is also payable for the first two quarters of the tax year 2023; the quarterly amount is one quarter of the anticipated payable contribution for 2022.
VI. Excise duty
Within tobacco products, a separate category would be defined for heated tobacco products with the purpose of making products which can be consumed through heating but do not contain tobacco or nicotine (typically herbal based) subject to excise duty as well.