New tax rules to hunt Hungarian tourist guides?

On Tuesday, the Hungarian parliament accepted changes made by the government to the People’s Small Business Tax (KATA) in Hungary. As a result, KATA payers, with the exception of taxi drivers, will be able to generate revenue by doing business only with Hungarian individuals and citizens. Experts say many tour guides will disappear from the tourism industry as they will have to pay much higher taxes due to the changes. Below you can read the details.

Hundreds of thousands of struggling families in Hungary

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

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

Moreover, the original tax system was so simple that no one needed to hire an accountant. The administration of other tax methods is much more difficult. Therefore, most people will need professional help. This will add 50 euros to the expenses of former KATA payers, each month.

Knockout to many tour guides

In the tourism sector, tour guides, waiters and chefs have chosen KATA. Judit Deák, president of the Federation of Hungarian Tourist Guides, said the situation was not as bad as it seemed. They hope the government will change the relevant regulations, as happened during the pandemic when the administration initially excluded tour guides from several allowances. However, they eventually changed the relevant decrees after receiving numerous complaints from people working in this sector.

Ms. Deák pointed out that tourist guides generate income by working with travel agencies which, of course, are not individuals. Also, most tour 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 could be that tour guides will have to raise their prices. In this case, fewer agencies will choose their services because they will not have the budget. And so the circle closes. 10 to 20% of tourist guides have left the sector because of the pandemic. This rate may increase due to new KATA rules.

As we have pointed out,

Protests erupted on Tuesday over KATA’s changes.

Protesters gathered in Kossuth Square, near parliament. The mob then marched to Margaret Bridge and blocked traffic there. At noon, they did the same on the Elizabeth Bridge. The ruling Fidesz and KDNP MPs didn’t care: they voted for the new rules 120 to 58. You can read our report on Tuesday’s protest and watch the photos at THIS link.

The government said the new rules would solve the problem of “hidden employment”, as the preferential tax would be reserved for entrepreneurs selling their products or offering their services to residents. KATA payers, with the exception of taxi drivers, will therefore generate revenue by dealing only with Hungarian individuals and citizens. The new rules are due to come into force on September 1, while taxpayers will have until September 25 to indicate whether they want to stay with the changed system or prefer other forms of taxation.

Source: www.turizmusonline.hu, mfor.hu

Laura T. Thrasher