Mária Lakatos

Taxation in General: Hungarian Tax System

Main principles and peculiarities of the VAT system

The value added tax is characterized by the following:

taken its type, VAT is an intermediated tax,
as regards its actual realization as an item of budgetary revenue, the place of realization is end-consumption (the end-user),
it is all-phase, which means that the payment obligation is applicable to all phases of the sale,
as regards the method of its collection, it eliminates tax accumulation [14].

For the value-added tax, first and foremost, the rules of self-taxation are applicable, which means that those subject to tax liability must register, summarize, calculate their taxes on their own, then make the returns and pay the amount payable. Tax clients are persons and organizations discharging economic activities in their own names.

Definition

Emergence of value-added tax liability: Value-added tax payment liability shall arise, when a product, service or intellectual property having an internal value, changes hands within the administrative frontiers of a country, in our case, the Republic of Hungary.

These three conditions must simultaneously subsist for a VAT payment liability to emerge. The definition also includes that the payment of the consideration for the above is not linked in any way whatsoever to the emergence of the tax payment liability and to the obligation to pay it, either (see below).

All sales of products and provisions of services of the tax client in Hungary are subject to VAT. The tax is paid by the end user, not to the budget, but to the seller of the product, service or right. Accounts for the VAT with the budget shall be made by the tax client selling the product or rendering the service, declaring the VAT revenues received from others as tax payable in his/her/its tax returns. Quite probably, there is no other tax type regarding which the invoice evidencing the transaction, and the filling thereof would receive so much attention.

The basic obligation is the so-called obligation to issue invoice, which means that the seller must issue an invoice of every sale or provision of service.

The tax shall be paid in each phase of the realization according to the following scheme:

9. Table. Determination of the tax and the tax contents

Net purchase price + VAT	HUF 100 + 20 % = HUF 120
Sales price + VAT	HUF 100 +100 = HUF 200 + 20 % = HUF 240
VAT payable tax rates	HUF 40 – HUF 20 = HUF 20 tax contents
In case of a VAT content of 25 %	20 % (50:250 = 0.20×100 = 20 %)
In case of a VAT content of 20 %	20:120 = 16.67
In case of a VAT content of 5 %	5:105 = 4.76 %
In case of a VAT content of 27 %	27:127 = 21.25 %

Source: by own calculation

As it can be seen, the tax rate shows the amount of VAT payable, while the tax contents presents the ratio between the tax and the gross price. The table shows that the multi-phase nature originates from the fact that system starts anew in every phase of the sales chain, the seller charges the tax, but from this liability deducts the tax (i.e., the input tax) that had been already paid at the time of the procurement.

The tax deduction right serves the elimination of tax accumulation. It is exercised as follows: in the tax returns the tax payable for the sales of commodities and the provision of services is reduced by the tax levied on the products and on the costs associated with rendering the services at the time of their procurement: these taxes have already been paid for at the time of original procurement, yet they were charged on the seller/services provider by another tax client.

The basic document of enforcing the right of tax deduction is, obviously, the invoice, the issuing of which shall be a topic of our discussion soon. In the final analyses, as many times as the goods or services change hands, every tax client shall pay the VAT thereupon only for the added value created thereby. The end user is the only exception, who, as a rule, is not subject to the VAT Act (Áfa tv.), therefore, unless the law prescribes otherwise, he/she has no right for withholding or reclaiming taxes.

A fundamental point of the VAT Act (Áfa tv.) is that, as much as possible, it observes the principle of territoriality which means that a given product or service should be taxed where it is consumed or purchased.

Imports are subject to VAT, irrespective of the fact whether they have entered the country as a consequence of a sale, or whether the importer is or not a tax client. At the same time, the exports made by tax clients are exempt from VAT. Since the accession to the EU, those are product purchases from third countries only (i.e., from countries not belonging to the EU) that qualify as imports, and the sales of products where the commodities are delivered to territories outside the EU as exports to third countries.

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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