Mária Lakatos

Taxation in General: Hungarian Tax System

Scope and effect of the personal income tax

Every tax act defines in its first paragraphs to whom it applies (e.g., to natural persons, partnerships), and for what activity its provisions apply. This is called the scope of the act.

Definition

Scope of the personal income tax: The scope of the personal income tax covers natural persons, their incomes (theoretically, from all sources and in all forms) and the tax liabilities these are subject to.

Although this statement cannot be found anywhere in its “pure” form, it manifests itself through several factors, in the laws and regulations.

The first influencing factor is the international economic life itself, and its system of relations that comes into existence in the form of bi- and multilateral tax treaties. In view of these, the relation between the Hungarian Personal Income Tax Act and the international treaties for the avoidance of double taxation has to be clarified, (e.g., which of the two takes precedence over the other). Eversince the first Personal Income Tax Act (Act No VI of 1987) [12]. The primacy of the international treaties, that is, that they take precedence over the Hungarian tax law is respected.

This Act, however, does not apply to everyone in the same fashion: its scope covers certain natural persons fully, while others only partly. Its provisions are restricted to resident natural persons. It extends to foreigners only if they are foreign residents, and the tax liability covers only the income they have earned in Hungary, which means that they are subject to the Act only partially.

Similarly to the above differentiation the scope of the Act varies also as regards the source of the incomes.

Definition

Scope of the personal income tax: All the income (domestic or foreign) of resident natural persons is subject to taxation according to this Act, but only income from domestic sources is subject to taxation in Hungary. (This means that the income of foreigners earned (from) abroad is not!)

From the point of view of practical operation personal income taxation is a „triangle structure”. The subject of taxation is the natural person (1), the state enforces the Act via the National Tax Office (2) (Nemzeti Adó-és Vámhivatal / Hungarian National Tax and Customs Administration – NAV) by virtue of the authority vested in it, but the tax is actually paid in the form of the tax advance deducted by the payers (of income), employers (3). Here we have to introduce an important intermediary, the payer (of income, mostly the employer), hereinafter called: payer. The tax advances calculated on the basis of monthly income, an obligation prescribed by the Procedural Rules of Taxation Act, are not paid by the natural persons who are the subjects to the tax obligation but by the companies which pay them salaries, remunerations or any wage whatsoever. These are called “payers” by the Act. The payer status has an outstanding role in the procedure of the Act and the collection of tax revenues.

The payers participate in the taxation process at several points: they deduct the tax advance or the previous tax shortage from the income earned at the workplace, prepare the employees annual returns, account for the difference, etc if the employee so requests. However, there are further tasks too, e.g., payers must cover the tax obligation for the income allotted to natural persons in case of benefits in kind.

The term of payer is defined by Section 97(j) of the Act on the Procedural Rules of Taxation (hereinafter also as: Art.) as follows [13]:

Definition

Payer: Payer is the legal entity, economic partnership without a legal personality, the self-employed, civil partnerships operating under a common name, specialized professional groups, condominium apartment houses, resort houses. The principal of a work is considered to be payer, even if he/she pays through an intermediary, such as the postal service or a bank. The only exception is when the intermediary accounts for the receipts under a contract concluded with the natural person (the payee) directly. Accordingly, a natural person can also be a payer, if he or she is a self-employed.

Payers inform the tax authorities of the activities performed at the workplaces through the so-called obligatory reports and issue certificates for their employees for the income the employees in question earned at the payers, and also of the tax advances withheld and paid by the payers (the special responsibility of the payers is also shown by the provision of the Personal Income Tax Act, according to which as soon as the payer deducted the tax advance from the employees, the Tax Office (NAV) can claim it only from the payer.)

Taxation in General: Hungarian Tax System

Tartalomjegyzék

Kiadó: Akadémiai Kiadó

Online megjelenés éve: 2022

ISBN: 978 963 664 137 5

Taxation is a scheme for the state to provide revenue. The so collected money could then cover the public spending of the government. These are the so-called allocative and redistributive functions of the state budget. Although, taxation theory discusses the various tax types and analyses the various taxation tools very extensively, there is no absolute answer to the question, when and what type of taxation system would be optimal. Thus this introductory book on taxation deals with the three basic types of taxes - the income tax, the VAT and the corporation tax - in a very pragmatic way. There are legal texts and cases from both the international and also from the relevant Hungarian practice.

This book is recommended not only for students of economics but also for law students and practitioners beside anyone who is interested in the basic regulations of taxation.

Hivatkozás: https://mersz.hu/lakatos-taxation-in-general-hungarian-tax-system//

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