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Áder Signs Controversial Law Altering Tax Burden of Small Businesses

Róbert Panyi 2020.07.14.

On Monday, President János Áder signed the law establishing the new state budget. The legislation also amends the rules governing the Itemized Tax for Small Businesses (KATA) in a bid to crack down on small business tax abusers. However, many opposed the changes, arguing that it was a not-so hidden tax raise.

Introduced during the Orbán government in 2013, the original aim of the KATA tax was to support micro businesses by making it easier for them to hire and reduce their administrative burdens. However, the government argued that based on the experience of  past years, certain companies had abused the regulations pertaining to the tax over the last several years – making certain changes to the KATA system necessary.

Under the new rules governing the tax, KATA taxpayers who invoice a single company will have to pay a 40% tax on income above HUF 3 million (EUR 8,500). The flat monthly HUF 50,000 payment will still apply to those who invoice multiple entities as long as annual income does not exceed HUF 12 million.

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Many were against the changes. Among the critics was the National Association of Hungarian Accountants, who sent an open letter to the Office of the President detailing their arguments against the bill. They asserted that the changes would result in a six-fold increase in the tax burden of a number of self-employed entrepreneurs – an unprecedented tax increase in Hungarian history.

In a statement posted on his website, President János Áder said he had received calls from three professional organizations over the past several days to send the bill back to parliament on the grounds that the changes made to the KATA tax were too harsh. Áder said he had carefully reviewed criticism of the bill, noting that during the coronavirus crisis it was especially important to shield entrepreneurs from any additional burdens. The president said that he believed the new rules would not result in significant tax increases for the vast majority of small businesses. Rather, the amendments made to the tax will close certain loopholes without affecting the more than 300,000 KATA taxpayers, he said, insisting that they would not have to pay higher taxes.

“In case someone believes that the new KATA system is no longer beneficial for them, they may still choose from a number of alternative forms of taxation offered by Hungarian law,” Áder added.

Featured photo illustration by Tibor Illyés/MTI.