The eVAT system is finally launched for the second time
It is indisputable that the digitisation of the Hungarian tax system has reached another important milestone, as the e-GST system will be launched on 1 January 2024 after lengthy preparatory work. Although its use will not be compulsory for the time being, it is expected to be the only option in a few years’ time.
Online cash registers, EKAER system, online invoice data service – some of the key developments that show the pace of digitisation of the Hungarian tax system over the past decade or more. Thanks to this, years ago we reached the point where no tax returns can be filed on paper, only electronically. The fact that the tax authorities now prepare a draft personal income tax return for everyone from the data available to them, which only has to be accepted or completed, is a remarkable achievement at international level.
The next important step in this digitalisation process will be the launch of the e-GST system on 1 January 2024. In addition to making the VAT return process faster, safer and more accurate for businesses, it is also important because it is expected that in a few years all tax types, including corporate tax and local business tax, will be able or required to be declared through this system.
They’ve tried once, now they’re finally there
The reform of the VAT return and the introduction of the eVAT system were originally scheduled for early 2022. The preparatory work on the legislation has progressed accordingly. The provisions that created the operational conditions for eVAT were adopted by Parliament in 2021, but were unexpectedly repealed later.
As the explanatory memorandum and the statements made on the subject did not provide any concrete information, the reasons could only be speculated. One possible explanation is that there were IT problems. Others suggest that the tax authority decided to rethink the concept and add new elements.
This time, it seems that all obstacles to implementation have been removed. In the 2024 autumn tax package, the additional rules to the VAT law and the law on the tax system that are necessary for the launch of the e-VAT system have been re-adopted, but more importantly, these rule changes are still in force. In addition, testing of the IT system has been completed and the National Tax and Customs Administration is essentially putting the finishing touches to it.
Three return forms
The use of the eVAT system will not be compulsory after its introduction, but a transitional period of 2-3 years (trial period) is expected to start in January. From the beginning of next year, the tax authorities will allow taxpayers to choose between virtually competing return options. Firms will have three options for submitting their VAT returns: (1) using the standard form filler (GIF), (2) accepting the tax authorities’ VAT returns via a web-based interface similar to the one used for the VAT returns, (3) via a machine-to-machine (M2M) connection (linking the business management systems and the NAV system).
In a sense, 1 January is therefore the start of a test period. The multiple alternatives will allow taxpayers to test the eVAT system in such a way that, in case of errors or inaccuracies, they can still submit their returns in the old way, even if they are not sure. However, if the old, outdated SAD scheme is phased out, eVAT will remain the only option for businesses. This is likely to be the way ‘compulsoryisation’ will take place, and the legislative intention is clear.
Fewer incorrect returns and more accurate tax controls
The launch of the e-GST system could bring significant and rapidly realisable benefits for the tax administration. At the NAV, the problem of steadily shrinking control capacities and ever shorter control deadlines, which have been a problem for years, could be helped by the introduction of a uniform VAT methodology, i.e. a defined data structure and a standard list of tax codes that businesses must use for their returns. With automation and the introduction of new return alternatives, it is expected that the tax authorities will receive fewer incorrect returns, which will not only reduce the need for future audits, but also make the audits themselves much more accurate and better targeted, not to mention improving the efficiency of risk analysis work.
In addition to the above, one of the main objectives of the development is to further reduce the so-called VAT gap in Hungary, i.e. the difference between the amount of VAT potentially collected and the amount actually collected. According to the European Commission’s latest study, published on 24 October this year, the VAT gap in Hungary was 4.4% in 2021.
Who benefits from using the VAT system?
This question will only be relevant in the transitional period starting 1 January, when it will become the sole and compulsory VAT declaration method. In general, based on the benefits and information already available, it can be said that if you start the changeover in good time, you will save considerable time, money and effort in the medium and long term.
For the majority of small and medium-sized enterprises, the VAT return form offered by the NAV is a clear advantage, as it relieves them of a significant administrative burden. Smaller taxpayers can access, amend and complete their VAT data for the current period via a dedicated web interface. The draft VAT return can also be viewed and approved via the same interface.
Machine-to-machine (M2M) filing is already a short- and medium-term solution for companies that spend a lot of time and effort compiling and filing VAT returns. For them, the changeover will be a complex, costly and carefully planned process, requiring not only IT skills but also considerable tax expertise. In most cases, an interface is needed to connect the accounting or ERP systems on the company side with the NAV system, which converts the data entered on the taxpayer side into the structure expected by the tax authorities. Ready-made solutions, out-of-the-box software products, are already available.
Convincing arguments for the switchover
The tax authorities are naturally keen to see more and more people gradually using the VAT return facilities and standardised processes offered by the new system. Accordingly, it is trying to persuade companies to start the eVAT M2M migration process in good time. These include additional data download services (e.g. NAV DataDatado) that will greatly assist businesses in the analysis and control of their accounting and return-related activities.
The above-mentioned objective is also served by the amendment of the rules that was introduced in the autumn session of Parliament (at Andersen’s suggestion) in the Taxation Act. Under this amendment, a taxpayer who opts for the machine-to-machine (M2M) method of filing will not have to pay a self-audit surcharge if he remedies errors within 15 days of filing by means of a self-audit procedure. Linked to this is the new rule stating that taxpayers who opt for a machine-to-machine VAT return and are reliably assessed will not be subject to a tax audit for 15 days, giving them the opportunity to carry out a self-audit without risk and without disruption.
