Small and medium-sized enterprises could save tens of billions of forints a year by reducing employment administration, according to the latest proposal by the Ministry of Finance.
Businesses spend 1.7% of their annual revenue on tax administration in Hungary and a significant part of it is related to employment. According to a survey from 2019 with cooperation and funding of the EU, HUF 92 billion is spent annually on employer returns and data reporting.
In addition to tax returns, businesses have to provide around 20 different types of data to various state organizations, such as the Central Statistical Office, the Hungarian State Treasury and the National Health Insurance Fund. Furthermore, the various forms and data requirements apply different or overlapping terminology that leads to duplication of or errors in data provision. According to the proposed solution, further to international best practices, the current form-centric approach would be replaced by a so-called event-based logic. Instead of reoccurring reporting of the very same data (e.g. status of the employee), the data is generated for public administrations from the basic building blocks of business processes, i.e. events triggering a change. It would imply that an event only needs to be sent by the employer once, eliminating the current redundant data provisions and the data processing role would be shifted to the recipient.
From the data provided in a single channel, the ‘state’ administration should generate the required forms from the event data it receives, without the involvement of the data provider. The processed data would then be stored in consolidated administrative systems. In that way the timing and format of data provision need not be aligned to the specific data needs of the various state bodies.
The Ministry of Finance expects that by fundamentally re-shaping the data provision system and logic, the proposal has the potential to substantially reduce the administrative burden on employers and thus increase competitiveness on a national level, simultaneously raise the quality of public services and also enable a higher level in terms of data security. Furthermore, a key element of the envisaged system is transparency: employers and employees alike would have direct access to their information. On the other hand, the proposal itself implies that the new system would not replace payroll functions but integrate those, therefore the actual saving on business side is yet to be seen in practice if and when the system is implemented.
As a first step the proposal is available for public consultation and can be expected to go live only after 5 years of development and implementation, once approved.
By Balint Zsoldos, Head of Tax, KCG Partners Law Firm