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Taxation in General: Hungarian Tax System
II. Chapter. Social security system – social solidarity
The previous chapter discussed taxation as the principal source of state revenues, and the general characteristics of the taxation system. Another, not less important, group of state revenues is the one made by social security charges and contributions.
Taxes and contributions are mixed up many times, but they are similar to each other only in their external attributes: their levying, collection and execution are coordinated by the Tax Office (NAV / Nemzeti Adó- és Vámhivatal / National Tax and Customs Administration), but as long as taxes represent a contribution in money with no consideration in exchange, contributions and charges are designated to provide coverage for a given public service.
What illustrates the most the development level of a modern welfare state is the development (state and level) of its welfare system. The broader is the circle in which and the higher is the level at which the welfare state is capable of providing for its citizens, the more developed it is. The goal of this sub-system, a form of the budget, is to establish and maintain social security [9]. Briefly speaking, social security means caring by the society for the old, sick and needy as an expression of the social solidarity. As a rule, in the Anglo-Saxon countries this care is secured for every citizen without any obligatory payment (contribution payment); a basic care by virtue of their citizenship. This is supplemented by a care subject to and depending on contribution payment, based whereupon a voluntary insurance system on business terms is created.
Hungary introduced the German model of the social security system, relying on obligatory contribution payment, in the 19th century. A characteristic feature of this system is, that we are eligible for care against contribution payment and this is supplemented by services afforded on the basis of social solidarity, which do not depend on our contribution payments but can be granted simply on the basis of being citizens of the country [9].
Social security is made up of four parts: health insurance, accident insurance, family insurance and pension insurance. The care system that provides benefits in case of unemployment operates separately.
We distinguish two big schemes in Hungary as a result of multiple fundamental changes in the system: the pension and the health insurance sub-branches. Their economic management took the form of separate state funds, which means that they collect separately the contributions and charges payable to them, and within the frames allowed by the statutory provisions they spend these monies on providing the given benefits.
The two main schemes are supplemented by separate funds operating under similar principles and executing partial tasks, as e.g., the social fund the aim of which is to provide for the loss of income caused by unemployment, and the vocational training fund financed from contributions for vocational training: these collectively form the social security system.
Definition
Social security system: The social security system means the specific statutory provisions and separately managed economic funds established, which determine what kind of contributions the various income owners have to pay, according to what principles the distinct funds financed therefrom must be managed and what benefits the payers of the contributions or, as the case may be, the citizens are entitled to.
The two big schemes, namely, pension and the health insurance account for the predominant part of the welfare spendings of the society. The two funds, however, are fundamentally different. The time horizon of the health insurance is typically short or medium term, while pension insurance makes its plans for the medium and the long run, which means that the time horizons of their economic management differ.
The difference is even bigger if we examine the benefits. In the case of the pension insurance we pay contribution and receive allowance, which means that they are both assets of the same kind (money), the value of which depends on the time factor to be taken into account.
As far as health insurance is concerned, not only allowance is rendered in exchange for the contribution, but also several allowances in kind and services. Allowances in kind are, for example, medical care, hospital care but also rehabilitation.
The financing of the two systems is different, too. Health insurance means eligibility for (entitledness to) services to be granted when necessary, accident insurance, on the other hand, is constructed otherwise: it does not guarantee at all that we must receive something under all circumstances; it is only in case that an accident happens and also for its consequences that it secures an annuity/allotment and services in kind, such as hospital treatment, medicaments, and an allotment as income substitute in cash (e.g., disability pension).
The pension scheme, on the other hand, grants eligibility for (entitledness to) pension upon attaining the age limit, or having fulfilled the minimum service time requirement [10].
As it can be seen, the task of the taxation system is to guarantee the revenues of the annual state spending, whereas social security incurs medium and long-term care obligation and some of the most important requirements it has to meet to maintain its guaranteed operation, are predictability and stability. Beside these, the impacts on the actors of the economy are not negligible, so the questions are how, for example, actual social solidarity influences the attitudes of the participants of the economy, the competitiveness of certain economic organizations, or how they act on savings (if the contributions payable are too high, simply no money is left for other savings), and how the equilibrium of the public finances is influenced thereby.
Of the two schemes, pension insurance causes the most problem as the amount of possible spending in a given year is actually to be determined several decades before, but the coverage must be secured also for generations thereafter.
The literature lists three different systems for financing the pension insurance system:
-
→ pay-as-you-go,
-
→ pay-as-you-earn,
-
→ fully funded.
Definition
Pay-as-you-go principle: The social security system operates on the pay-as-you-go basis if the system finances the expenditure of a given period using the contributions received during the same period.
Pay-as-you-earn principle: In this system a capital based according to the earnings of the retiring person is allocated to him or her upon retirement, and the use thereof and its proceeds provide the coverage for the pension payable for the expectable life span.
Fully funded principle: According to this system the contribution payments made during the active life are capitalized and those going to pension receive back this amount. The capital amount and its accessories provide coverage for the pension payable for the expectable life span.
In Hungary, following several reforms and modifications the pay-as-you-go system is used, which means that the contribution payments of the present generations provide coverage for the actual pension payments to be made for the actual pensioners, i.e. the former generations and also, the present generations’ health insurance contributions create the sources that are used to cover the health insurance expenditure. As the chart hereunder shows, the resources in this system are predominantly composed of contribution payments.
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3. Figure. Funds of the social security system
Source: own chart based upon the 2022 Budget Law
As it can be seen the taxes are among the revenues of the state finances, while the social security funds manage their revenues independently, and cover their expenditure from their receipts. If there is a deficit, the budget is to redeploy the amounts required to cover the shortage from other separate funds or its reserves.
Tartalomjegyzék
- Taxation in general: Hungarian Tax System
- COPYRIGHT PAGE
- I. Chapter. First things first
- II. Chapter. Social security system – social solidarity
- III. Chapter. Personal Income Taxation
- IV. Chapter. Calculation of the personal income tax and contributions for earned income
- V. Chapter. Certain defined benefits, fringe benefits (cafeteria), separate taxable income
- VI. Chapter. Corporate tax: double taxation or the social expenditure of the enterprises
- VII. Chapter. Hungarian Tax reform 1988-2020
- VIII. Chapter. Value Added Tax
- Rudiments of sales taxes
- Main principles and peculiarities of the VAT system
- The Hungarian VAT system
- VAT subject (Tax client)
- Basis of assessment
- Scope of those liable to pay VAT and reverse taxation
- Exemptions from VAT
- Genuinely VAT exempt transactions
- Tax rates in VAT
- Special methods for establishing VAT
- Taxation of travel agencies (tour operators) based on their margins
- Small rural producers – compensation surcharge
- Secondhand trading – taxation based on the difference
- Rudiments of sales taxes
- IX. Chapter. Fundamental principles of international taxation, structure of the model agreements taxation of salaries
- Summary
- References
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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