Digitization of the Hungarian tax system is progressing unhindered

Károly Radnai, Managing Partner of Andersen Adótanácsadó Zrt.

Over the past decade, the Hungarian tax system has undergone a massive change. A key aspect of this is the rapid digitization of the system, which has fundamentally transformed the process of filing tax returns and performing tax audits.

A few years ago we reached the point in Hungary where virtually all tax returns must or can be filed electronically rather than on paper. It is considered a significant achievement, even internationally, that based on the available data, the Hungarian tax administration now prepares a draft income tax return for all, which the taxpayer only has to be accepted or supplemented according to their needs. If the trend towards digitization is not broken, the process of filing tax returns should be radically transformed for all types of taxes within 10 years.

Developments aimed at connecting the various business IT systems, such as EKÁER (the electronic goods control system for road transport), online cash registers or online billing data services, have all been important steps in the scanning process. They also helped whitewash the Hungarian economy to a large extent.

The tax administration can now obtain information from sources other than tax declarations alone, which considerably improves the efficiency of tax audits. It is important to note that in terms of services, this information allows the tax administration to draw up draft tax declarations on behalf of taxpayers.

The transformation of the process of filing tax returns and collecting data has fundamentally transformed the methods of tax auditing. The established practice was that tax administration staff mainly visited the best performing taxpayers for audit purposes, when the ratio between the investment in the work and the expected loss of tax revenue was considered acceptable. Today, there are far fewer large-scale operations of this type and far more so-called targeted audits. This is because the tax administration mainly works from online data, so that action can be taken much earlier in the event of discrepancies or suspected tax evasion.

Extensive data resources

Thanks to digitization and IT developments, NAV has a vast pool of data. This massive sea of ​​data contains exciting correlations inherent in the aspect of tax audits, which can be uncovered through proven technologies. It is possible, for example, to perform the time-consuming analytical work of humans using self-learning and self-developing algorithms, which further improves the efficiency and speed of tax audits .

The Hungarian tax administration relies more and more on the analysis of this wealth of assets. An artificial intelligence group has been created within the organization, and one of its main tasks is to identify tax irregularities.

The bill preparing for the upcoming implementation of electronic receipts was part of the fall tax file filed in mid-October. According to official information received, issuing paperless receipts will mean less administration, easier use and reduced costs for contractors. Although the detailed rules are not yet known, the implementation of electronic receipts could be another important step in the digitalization of the Hungarian tax system.

The launch of the e-VAT system will have a similar importance. The essence of this globally unique development is that the tax administration could compile companies’ VAT returns based on available data. Originally slated for 2021, the launch has been postponed several times, most recently in November last year. Although the exact date of implementation is not yet known, NAV has again recently sought user feedback on the project to connect accounting programs and electronic VAT declarations.

This article first appeared in the print issue of the Budapest Business Journal on November 18, 2022.

Laura T. Thrasher