New tax rules to chase away Hungarian tourist guides?

On Tuesday, the Hungarian parliament accepted the government’s modifications to the popular small business tax (KATA) in Hungary. As a result, KATA payers, with the exception of taxi drivers, will be able to generate revenues by doing business only with private individuals and Hungarian citizens. Experts say that many tourist guides will disappear from the tourism sector since they will have to pay much higher taxes because of the modifications. Below you can read the details.

Hundreds of thousands of families in trouble in Hungary

According to turizmusonline.hu, the new rules of KATA cause problems in the Hungarian tourism sector. That is because, from September, it will only be profitable for self-employed individuals working full-time in their business and providing services or selling products to individuals. They will have to pay a flat tax of HUF 50,000 (EUR 122) per month if their annual revenues do not exceed HUF 18,000,000 (EUR 43,932.26). However, most of the current KATA payers do not fall into that category. They produce revenues by collaborating with companies and institutions or they only work part-time in their business. Tourist guides and Airbnb owners are good examples of that.

Based on the calculations of mfor.hu, the modifications affect at least 2/3rd of the approximately 450,000 KATA payers. A small business will lose EUR 106.63 per month if its yearly revenue does not reach HUF 3,000,000 (EUR 7,332). That loss rises to EUR 143.29 per month if the annual revenue is HUF 5,000,000 (12,221 EUR). The loss is respectively EUR 180 and EUR 452 per month if the small business reaches the HUF 7,000,000 and 12,000,000 thresholds (EUR 17,019 and 30,000). These are significant losses if you consider that the median average income in Hungary is below EUR 1,000 per month.

Moreover, the original tax scheme was so simple that nobody needed to hire an accountant. Administering other tax methods is much more difficult. Therefore, most people will need the help of a professional. That will add EUR 50 to the expenses of the former KATA payers, each month.

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Coup de grâce to many tourist guides

In the tourism sector, tourist guides, waiters and chefs chose KATA. Judit Deák, the chairwoman of the Federation of Hungarian Tourist Guides, said that the situation was not as grave as it seemed. They hope that the government will change the relevant regulations as happened during the pandemic when the administration initially excluded tourist guides from several allowances. However, they eventually modified relevant decrees upon receiving numerous complaints from people working in that sector.

Mrs Deák highlighted that tourist guides generate revenues by working with travel agencies that understandably are not private individuals. Furthermore, most tourist guides work with multiple travel agencies. She added that, provided the government does not change the new rules,

many will continue their work illegally, which means the state will lose a significant amount of tax money.

Another consequence might be that tourist guides will have to raise their prices. In that case, fewer agencies will choose their services because they will not have the budget. And so, the circle closes. 10-20 percent of the tourist guides left the sector because of the pandemic. That rate might increase because of the new KATA rules.

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As we reported,

protests broke out on Tuesday because of the KATA modifications.

Demonstrators gathered on Kossuth Square, near the parliament. The crowd later marched to Margaret Bridge and blocked the traffic there. At noon, they did the same on the Elizabeth Bridge. Ruling Fidesz and KDNP MPs did not care: they voted for the new rules 120 to 58. You can read our report on the Tuesday protest and look at the photos on THIS link.

The government said the new rules would solve the issue of “hidden employment” as the preferential tax would be restricted to entrepreneurs selling their products or offering their services to residents. KATA payers, with the exception of taxi drivers, will, thus, generate revenues by doing business with private individuals and Hungarian citizens only. The new regulations are to take effect on 1 September, while taxpayers will have time until 25 September to indicate whether they wish to stay with the modified system or prefer other forms of taxation.

Source: turizmusonline.hu, mfor.hu