President Novák signs new tax law

July 18. 2022. – 10:09 PM

updated

The President of Hungary, Katalin Novák has signed the amended tax law, thus it is final: beginning in September, hundreds of thousands of Hungarians who have been using this form of paying their taxes will be forced to change to another tax category or give up their business altogether. Earlier, both MSZP and Jobbik had asked Novák to send the bill back to parliament, but she did not exercise this right.

Head of State Katalin Novák announced on Facebook that she had signed the law. The President wrote:

"I have not found any reason to appeal to the Constitutional Court. The legislative intention, and the purpose of the change are hardly debatable."

Novák however added that she has "sensed" the outcry surrounding the law, and said it would have been better "if the amendments had been decided after a substantive consultation", so she held talks with the Prime Minister and members of the government – who did not appear in parliament on Monday and have not yet responded to the criticisms – and was promised that

"reassuring answers will be given to legitimate questions as the detailed rules are worked out".

She also wrote:

"We are living in extraordinary times. The economic crisis in the wake of war is upending our daily lives. Forces beyond our control are making the future unpredictable. Hungary's security is also based on the stability of its public finances and budget. In a crisis, we need steady hands, a cool head and a compassionate heart. In this situation, it is right that the Head of State should not put obstacles in the way of Parliament's decision."

Following previous rumours, on Monday, 11 July the government finally submitted an amendment to the tax law, which the parliament promptly voted to accept on the next day under an exceptional procedure. Both NGOs and professional organizations gave voice to their criticism of the proposal, as did opposition parties. Since the day it was passed, there have been almost daily demonstrations in Budapest and several other Hungarian cities.

The amendment to the tax law stipulates that from now on sole proprietors and those who are self-employed may not issue invoices to companies – this change excludes about three quarters of the approximately 400 000 Hungarians who have been paying their taxes this way from continuing to do so. Several problems have been raised about this way of taxation previously, and many companies have used it as a form of hidden employment.

However, instead of fine tuning it and changing it so that cheaters could be filtered out, the government essentially executed it.

Apart from its content, many have also criticised the fact that the amendment will enter into force on 1 September. This means that hundreds of thousands of people could be forced to find accountants and go to the tax office to take care of paperwork in the coming weeks, which is the middle of the summer holiday season.

Both those affected by the change and the opposition parties have requested that the government change the date of the modification coming into force from September to January of 2023 – in order to give more time to switch to other tax regimes. Momentum's amendment to this effect was voted down by government MPs.

The Budapest Chamber of Commerce and Industry (BKIK) also wanted to postpone the entry into force of the law until January, and proposed to rationalise some of the new KATA rules until then, and to develop a new tax system via social consultation for those who do not qualify for this taxation system any more.

There have been several explanations in the government's communication about why there was a need to restructure this form of taxation. On Friday morning, in his usual interview on Kossuth Rádió, Prime Minister Viktor Orbán justified the need for the change on the grounds of the sustainability of the system of state pensions – a departure from previous arguments. According to him, the pension fund will "go bust" if 450,000 people do not continue to pay into it as employees do.

Katalin Novák gave her first interview following her inauguration to Telex.

At the time, she said:

“For me, two things guide me when signing a law that has been passed. Firstly, whether it is in accordance with the Fundamental Law, and secondly, whether it serves the interests of the Hungarian people according to my good conscience. Accordingly, I decide whether a law is good or not.”

When the law was accepted by parliament last week, several opposition parties indicated that if Novák signs it into law, they would appeal to the Constitutional Court.

This intention was confirmed by Jobbik and Mi Hazánk following Novák's announcement. Momentum, which played an active role in the first street demonstration, reacted by saying:

"As President of the Republic, she should in principle express the unity of the nation and guard the democratic functioning of the state, but instead, one of her first measures is to plunge the livelihood of 450,000 entrepreneurs and their families into insecurity in a flash." They also wrote:

"Even she herself claims that it would have been better if there had been a social consultation before legislating, but she signed the law which was hastily thrown-together in one day, and sided with Viktor Orbán and austerity instead of representing the people and standing for predictability."

Among others, the Chamber of Hungarian Lawyers has also expressed deep concerns about the modification proposal. Last Wednesday, János Bánáti, president of the Chamber, issued a statement asking Katalin Novák not to sign the law because:

"This law is generating changes in the middle of the year and is affecting hundreds of thousands of citizens, micro, small and medium-sized enterprises and lawyers. It was adopted without any meaningful professional consultation and therefore violates the requirement of legal certainty."

Lawyers claim that this legislation will bring a sharp increase in the burden of taxpayers and those seeking justice, and with deadlines that make it difficult to adequately prepare, it will undermine the financial conditions of the work of probation lawyers and public defenders, thus jeopardizing access to justice.

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The translation of this article was made possible by our cooperation with the Heinrich Böll Foundation.