Economy 24 March 2020, 12:50pm

What is Orbán's second COVID-19 package enough for?

Portfolio

It is most welcome that the Hungarian government takes one measure after another within a short period to support select economic agents. However, while tax exemptions will be a relief for some sectors, other businesses will spiral down into most difficult positions, said Gábor Fajcsák, head of the tax division at RSM. He shared his views with Portfolio about the 11 stimulus measures announced so far, and warned that if the government does not deploy other kinds of tools it could have serious consequences.

This will not be enough

So far, the cabinet has announced five plus six measures to migitage the economic fallout from the spread of the novel coronavirus (COVID-19). After Orbán's press briefing on Monday, Gábor Fajcsák told Portfolio the suspension of tax execution procedures is a help for all businesses, but we should wait for the final wording of the legislation. Theoretically, this should be an exemption for all businesses, regardless of their capacity to clear their debt or not, he added.

In his view, by this measure the government will freeze the current situation, given that if a business cannot pay net wages in the current environment, it will not be in a better position even after the tax exemptions are put into effect.

As far as we know, businesses that do not operate in endangered sectors will have to pay taxes retroactively after the state of emergency is revoked, while those in the favoured (i.e. hardest-hit) sectors will not have that obligation, regardless of their financial health.

He also remarked that the general exemption from contributions in select sectors is the wrong direction. The government should evaluate the actual situation of businesses and set up different target groups. The National Tax Authority (NAV) has the capacities to do that and after suspending tax execution procedures this could be the next focus area.

We need to think about how to identify busineses where the state could pitch in even with the net wages of employees

, the tax expert noted in respect of what the next step could be.

He maintains his previously expressed view that the measure are targeted only on select and prioritised sectors, while sectors giving the backbone of the Hungarian economy are neglected. These include the processing and the automotive sectors, as well as the suppliers of suppliers, i.e. manufacturing companies, which are traditionally in Hungarian hands and are SMEs.

Okay, but how?

Fajcsák has drawn up two possible solutions for targeted and effective assistance for businesses that would allow them to pay net wages. One of the ways to go is an immediate extension of interest-free loans, because viable companies could be rescued by this measure.

The cabinet may set up a dedicated budget fund for this, for instance

, he said.

The cabinet could supplement this even by a non-refundable subsidy, with an option for businesses in need to apply for both.

This would be a much more targeted and more efficient solution ensuring better control than the ones already announced

, he added.

When asked what budget sources would be there to cover the additional costs, Fajcsák said a major reduction of the VAT gap, i.e. the increase in consumption tax revenues would partly cover the costs, and the European Commission's announcement made last week also gives the cabinet a chance for a massive fiscal stimulus.

As regards the extra expenditures relating to the steps aimed at restarting the economy Fajcsák noted that currently no price is too high for the cabinet when it comes to supporting the selected sectors. It grants exemptions and other breaks but spending could be kept more in check.

A practical way to go would be a rapid allocation of loans and subsidies. In order to minimise abuse the funds could be transferred directly to the employees' accounts, cutting out the businesses themselves, for companies may already provide employee data in their applications.

Running checks on employees is the easiest before the transfers are made, and the pre-qualification round could also be eliminated in such a system. The speed of the process is crucial in the current critical situation, stressed Fajcsák.

Fajcsák Gábor rsm — Fajcsák Gábor. Fotó: RSM

Kata question

Whereas the exemption from kata (itemised tax for small businesses) granted to various professions is a welcome measure, it raises some issues. What you work in an alleviated sector (as a hairdresser or carpenter) but do not pay taxes in the kata system, you and your employer will be both relatively disadvantaged simply because you work as a regular employee, said Fajcsák.

Not to mention that the exemption granted could make more people choose kata, exactly when the government had previously announced stricter control for kata subjects.

If a business does not have income or revenue - regardless if they are companies or self-employed people - they will unable to pay wages let alone taxes.

Conclusion

We live in time when it is the cabinet's responsibility to ensure the subsistence of masses of people via income support and corporate incentives

, said Fajcsák, referring to the necessity of drastic measures. This way hundreds of thousands of people may be prevented from losing their jobs in Hungary.